COUNCIL OF THE CITY OF PHILADELPHIA PUBLIC HEARING AND PUBLIC MEETING BEFORE THE COMMITTEE OF THE WHOLE - - - Room 400, City Hall Philadelphia, Pennsylvania November 30, 1998 9:50 a.m. - - - Bill No. 980784 - Amending Zoning Maps... Bill No. 980785 - Re use for Civic Center Land... Bill No. 980788 - Amending Title "Finances, Taxes and Collections," by adding Chapter 19-3200 10 "Keystone Opportunity Zone"... Bill No. 980796 - Re Police Residency Requirements... 11 Bill No. 980789 - Re Provision of Alternative Funding Mechanism... 12 Bill No. 980843 - Re Recodification of City's Retirement System... 13 (Full Text of Bills Attached.) 14 15 PRESENT: COUNCIL PRESIDENT JOHN F. STREET COUNCILWOMAN AUGUSTA A. CLARK 16 COUNCILWOMAN JANNIE BLACKWELL COUNCILMAN DAVID COHEN 17 COUNCILWOMAN ANNA CIBOTTA VERNA COUNCILMAN JAMES F. KENNEY 18 COUNCILMAN MICHAEL A. MUTTER COUNCILWOMAN MARIAN B. TASCO 19 COUNCILMAN ANGEL L. ORTIZ COUNCILMAN FRANK DICICCO COUNCILMAN RICHARD T. MARIANO COUNCILMAN W. THACHER LONGSTRETH COUNCILMAN FRANK RIZZO - - - VINCENT VARALLO ASSOCIATES, INC. Registered Professional Reporters Eleven Penn Center 1835 Market Street, Suite 600 Philadelphia, PA 19103 (215) 561-2220 2 PUBLIC MEETING - COMMITTEE OF THE WHOLE INDEX BILL NO. 980784 William Hankowsky, President............. Philadelphia Industrial Development 6 Corporation John Frye, Executive Vice-president...... 36 from the University of Pennsylvania Jeffrey Revist, Executive Vice-President.. 40 of the Children's Hospital of Philadelphia Charley Pizzi, President of the.......... 46 Greater Philadelphia Chamber of Commerce Rich Lombardo............................. 49 Philadelphia Planning Commission Ken A. Sipos, Department Real Estate..... 53 Specialist II, Department of Public Property BILL NO. 980788 Stephen P. Mullin, City Representative.... 55 and Director of Commerce for the City of Philadelphia BILL NO. 980787 Nancy Kammerdiner, Revenue Commissioner... 161 for the City of Philadelphia Frank Piava, Divisional Deputy............ 168 City Solicitor for the Tax Unit BILL NO. 980796 Ricky Lynn Southerland, Petty Officer..... 180 Third Class Fred Voigt, Executive Director............ 190 of the Committee of Seventy 3 PUBLIC MEETING - COMMITTEE OF THE WHOLE (Index, cont'd.) Stephen Preston, Legal Director........... 231 Commissioner John F. Timoney.............. 246 Karen Simmons, Legal Assistant............ 296 to Commissioner Timoney Mr. Rocks, member of the F.O.P............ 308 Linda Sadel, Personnel Representative..... 315 of the City of Philadelphia James Jordon, Integrity and............... 337 Accountability Officer Will Gonzalez, Executive Director......... 345 of the Police- Barrio Relations Project BILL NO. 980789 Ben Hayllar, Director of Finance.......... 354 Kenneth Kent, Actuary for the............. 380 Pension Fund Sandra Parker Chief Investment Officer.... 386 for the Pension Fund Joe Miguel, from PICA..................... 418 Thomas Queenan, City Treasurer............ 431 BILL NO. 980843 Ben Hayllar, Director of Finance.......... 433 Deborah Butler............................ 441 Chief Deputy city Solicitor Carol Stooks.............................. 453 Representative of District Council 47 4 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 P R O C E E D I N G S
I have to step out for a bit, and Councilwoman Verna will sit in the chair. It is now ten to 10:00, and we would like to start the hearing considering Bills No. 980784 and 980785. Mr. Hankowsky, being a veteran witness in this chamber, has commented pertinent -- placed himself at the witness table and placed his charts up. Smart thing to do. If we could get a quorum in the chamber, we would appreciate it very much. If we could get a quorum in the chamber, we would appreciate it very much. We now have six members. We can get a quorum in the chamber. I promise you everybody will know what's in the bills. Attention, we'd appreciate if we one additional councilmember will come to the chambers; we will then have a quorum. We need one councilmember in the chamber. I have a feeling that Councilman Longstreth will enter the room very, very shortly. Councilman Longstreth you are embarrassing me. Where are you? 5 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 I'd appreciate it if councilmembers would come to the chamber. Even if a member is in a meeting, if you come and give us a quorum, you may be excused until you are needed. Councilman Nutter is in the eight. If we can have one additional councilmember in the chamber, we can get started. Councilman Longstreth has arrived. I now have a quorum. The first bill for consideration today will be Bill No. 980784. This is a bill to amend the zoning maps by changing the zoning designations of certain areas of land located in the 27th Ward and within an area bounded by Civic Center Boulevard, Convention Avenue, South Street, the Schuylkill Expressway, North Drive and University Avenue. And then we have Bill No. 980785, which is a bill declaring it to be the finding of City Council that for many years the City of Philadelphia and the Civic Center Board of Directors have not been able, in good faith, to use certain parcels of land occupied by the Civic Center. These two bills will be first heard. I 6 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 understand that Mr. Hankowsky will give the primary testimony on the bills. There are a number of people who will testify. Will Councilwoman Verna please approach the chair? As I have previously explained, I will be out of the chamber for about to 30 minutes and 9 will return. I do not want anyone to think I am not 10 interested in these bills or any other bills, but 11 this is something over which I have no control. 12 Thank you. 13 (Councilwoman Verna takes the chair.) 14
Good morning, Mr. 15 Hankowsky. Please identify yourself for the record 16 and proceed with your testimony. 17
Good morning, Madam 18 Chairwoman and Members of City Council's Committee 19 of the Whole. My name is William Hankowsky. I am 20 president of the Philadelphia Industrial Development Corporation, and I am here to testify today in support of Bills No. 980784 and 980785. Also available this morning are senior officials of both the University of Pennsylvania and Children's Hospital of Philadelphia, who are here to 7 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 answer any questions with regard to these bills before you. Before I start my testimony, let me point out that at each councilperson's place is a folder that includes my testimony, which would have been previously submitted, a facts sheet on this transaction, a small 8 and a half by 11 site plan, and then amendments to Bill No. 980785. And I should note, those amendments simply change the legal descriptions of certain easements in the project. There is no substantial change that results from those amendments. Bill No. 980784 authorizes a change in the zoning of the acre Civic Center Site on Civic 16 Center Boulevard in West Philadelphia from R-15 to 17 C-3. And Bill No. 9 acres of that site to the Philadelphia 19 Authority for Industrial Development, PAID. 5 acres will be transferred to the University of Pennsylvania and Children's Hospital together with three access easements. The City will retain ownership and control of what most of us know as the Museum Building, Convention Hall and Pennsylvania Hall. 8 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 Further, Bill No. 5 acre 4 parcel to the University of Pennsylvania and 5 approximately 2 and a half acres to Children's 6 Hospital. The site plan attached to your fax sheet and displayed at the easel in front of us this morning graphically illustrates the size and location of these respective parcels. 5 acres of this site. And PAID will receive approximately $3 million in cash consideration for Children's Hospital for their parcel. 2 acre parcel of the Civic Center to PAID had been added to the hearing agenda. In order to basically describe this entire transaction, this resolution was passed by City Council in its session on October 29th, 1998 and authorized the transfer of that site, which is 9 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 at the extreme end of the property to the University of Pennsylvania and Children's Hospital for the development of an 1800-car garage, which will replace the parking lost as a result of the development of the rest of the site. I think most of us all remember there is an underground garage here; that will be part of the demolition. Since the timing of the construction of this garage is critical for the overall project to occur, we have already begun to develop the definitive agreements necessary for transfer of that parcel and are working with the University of Pennsylvania and Children's Hospital to take the necessary next steps on that project. These institutions will pay approximately $5 million as consideration for this parcel. Construction of the new garage is expected to start in March of next year with the garage opening in June of the year 2000. Let me now turn back to Bill No. 23 980785. This property is currently at the location of the main exhibition hall of the former Civic Center. As you know, this facility was officially 10 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 closed in 1995 upon the opening of the new Convention Center in Center City and has been used infrequently by the City since then; for example, for the event Dinofest (ph). The opening of the new Convention Center has made this facility obsolete, thereby freeing this site for other appropriate development that will benefit the City. 3 million square feet of medical research patient treatment and office space in support of their expanding medical activities in the city. And, Craig, if you wouldn't mind, I just want to point out on the aerial that's in front of us where this will occur.
2 acre site where the garage will be constructed. That was the subject of the resolution Council acted on on the 29th of October. Pennsylvania Hall is the next building that remains and is not part of this transaction. The large exhibition hall, the 8 and a half acre site, is outlined in yellow is then 11 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 subdivided into two parcels approximately, 6 acres for the University of Pennsylvania and approximately 2 and a half acres for Children's Hospital. And then again, Convention Hall and the Museum Building also remain and are not part of this transaction. And, Craig, maybe we should go to the next one? And it just simply shows that on a site plan, which is in your packet. As you can see, this development will essentially represent a continuation of the very successful Philadelphia Heath Care Science Project that was undertaken by these two institutions and others across Civic Center Boulevard on the old Philadelphia General Hospital Property and the tremendous benefits that have resulted to the City in that project. On the PGH Development, the two institutions combined have invested more than $400 million to date, have added over 5,000 new high-paying jobs to the City's employment base. The proposed development on the Civic Center Site will be very comparable to what happened on the PGH Site in its scope and impact including an 12 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 estimated $450 million of planned additional development and approximately 2250 permanent new jobs; again, just on the parcels we are talking about this morning. Furthermore, this project will generate approximately 1500 construction jobs. I should further note that the City is not required to provide any financial support to this project, so it will have no budget impact. The on-site streets that will service this project will be built by the institutions as part of the overall development. In addition, the City and PIDC will apply for approximately $2 million in State and Federal grants for the relocation of certain water and sewer utility lines that traverse the site and service the West Philadelphia area in general. The two institutions have worked very cooperatively with the City PIDC on the Philadelphia Health Science Development, and we fully expect this good working relationship to continue on this project. To date PIDC, the University of Pennsylvania and Children's Hospital have together already invested a significant amount of time and 13 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 effort as well as over 250,000 toward developing a comprehensive master plan for this site to ensure that issues such as adequate zoning, parking, traffic and access are dealt with in a way that will facilitate the successful development of the whole property both now and in the future. Let me point out that what I mean by this is that we ensure that both Pennsylvania Hall and the Convention Hall and the Museum Building are all future development sites and are part of an overall master plan so we are not -- so that we can gain the entire benefit of this entire site being developed over time. The zoning designation of C-3 is identical to what City Council approved in December in 1997 across Civic Center Boulevard for Children's Hospital. And any authorization for subsequent development of the Civic Center Museum Site, Convention Hall Site or Pennsylvania Hall Site will be subject to City Council approval. So we must come back if we dispose of any of those remaining three parcels. As part of the definitive agreement to 14 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 soon be negotiated between the parties, PIDC will include a requirement to amend the NBE/WBE Plan to be developed to ensure appropriate levels of minority and female representation be reflected in the design and construction of these new buildings.
Both University of Pennsylvania and Children's Hospital have an excellent track record in that regard and have agreed to provide those progressions in these developments as well. And as I said, earlier representatives of both institutions can elaborate on this point as well as any other questions you might have this morning. Predicated on City Council's favorable consideration, the current schedule calls for the following: environmental cleanup work to commence in January of 1999 with demolition and construction to begin as soon as possible thereafter. We are hoping to have orphans' court approval by July of next year. And as mentioned previously, the first phase of the development will include the construction of the 1800-car parking garage by the University of Pennsylvania and Children's Hospital on the 2 acre parcel already authorized by City Council. 15 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 This will replace the approximately 1400 parking spaces currently under the existing Civic Center that are scheduled for demolition, which is projected to begin on March 15th of 1999. And, again, that garage should be available for occupancy in June of 2000. Finally, as I mentioned when I described the packet in front of you, I would like to amended the legal descriptions for the three access easements that will be transferred so that they reflect the site survey of the property that was completed subsequent to the introduction of these bills in City Council. We would respectfully ask that the Committee consider these bills favorably, report them out with the suspension of the rules of council at the next regularly-scheduled meeting of City Council. Thank you for this opportunity to testify. I would be happy to answer any questions with regard to this ordinance as would representatives of both institutions. Thank you.
Thank you. Mr. Hankowsky, why do we need orphans' court approval? 16 11/30/98 - WHOLE - BILLS NO. 980784 and 980785
The Civic Center Property -- and I should make the point here that the site I described for the garage, the 2.2 acre site, is excluded from this issue. It is not -- it can proceed without orphans' court. But the remainder of the property was provided to the City in trust for what occurred over time, which was the development of the Museum Building and Convention Hall. Therefore, in order to transfer the property, in addition to City Council's consent, we will also need orphans' court approval. And we, therefore, would proceed to orphans' court immediately upon, hopefully, favorable consideration by City Council.
I know you indicated that there would be approximately 1500 construction jobs. How many permanent jobs did you indicate that this would create?
This will create in this phase, between the garages, the buildings at Penn, and Children's Hospital, will develop 2250 permanent new jobs.
Can you tell us 17 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 what the anticipated increase in wage tax as a result of this construction will be?
We anticipate, given the high salary level that these kinds of jobs are, research and medical, that you would have approximately a $4 million increase in wage tax once the project is up and operating.
Thank you, Madam Chair. When the issue of the Convention Center was before City Council a number of years ago, there were many questions raised about what would happen to the Civic Center. And at that time, my memory tells me there were very strong assertions by you and others on behalf of the City that both were needed, that the Civic Center dealt with needs that the Convention Center would not be dealing with and vice versa, and that there was no danger of the Civic Center proving unnecessary. Could you comment with respect to what has caused a change?
Yes. Perhaps the most 18 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 fundamental change was, at the time we dealt with the Convention Center, we did not have the prospect on the horizon that we would develop a second arena in South Philadelphia. And as you might recall, since your memory is extremely good, Councilman, when we talked about the development of what is now the First Union Center but at the time we called it Spectrum II, we did present the City Council an analysis that showed there was a high probability that whatever was remaining in terms of activity at the Civic Center that would probably migrate into the old Spectrum. And, in fact, in the analysis we presented to City Council of their cost and benefits of doing the new arena, we actually charged ourselves, so to speak, with the cost of losing all activity at the Civic Center as one of things that would occur. And, in fact, that's what happened. If you recall, we used to at Convention Hall have sort of a second-tier Ice Capades or second-tier wrestling activities. All of that now occurs in the old Spectrum. So, in fact, between the Convention Center handling conventions, trade shows and other 19 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 meetings, and the two arenas handling all of what I will call public events, there is almost now no 4 activity occurring at this facility.
My memory is very good as to what was said with respect to the continued need for the Civic Center when we talked about the Convention Center. But I must admit, I don't remember at all any testimony at any time with respect to any project indicating that the Civic Center was no longer needed, that its business was being transferred to the Spectrum, or the First Union Center now. Could you tell us about when that matter came up?
Yeah. As you recall, we so much enjoyed doing the arena project, we actually did it twice in this chamber. We did it at the end of Mayor Goode's administration the first time -- I believe that was 1991 -- and then we needed to come back, and modified that agreement, I believe in 1993. And, in fact, I would be happy to share with you, Councilman, the testimony and the analysis that showed, in fact, that we projected that the 20 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 Civic Center Property would be out of activity as a function of building the new arena.
How long after the Convention Center discussion was that, if you recollect?
Well, we did the Convention Center Legislation, the Use and Service Agreement in '89, if I recall. '88? '88? '87?
And you are saying within two or three years thereafter?
The City changed its position, found that circumstances were different?
Thank you, Madam Chair. In the same line of questioning that Councilman Cohen was pursuing, when I first became a member of the Civic Center Board in 21 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 1992, I believed at that time that that building could be used for smaller-type events and even as a convention and meeting incubator for smaller organizations that could not afford to go into this Convention Center but still wanted to meet in Philadelphia and perhaps grow that convention business into something that would be accommodated in the Convention Center. As a result of a lot of hard work and efforts, the problem was that people chose not to go to the Civic Center. It was their choice. We had looked at different events, different shows, things that we were trying to attract into the city that would not necessarily be in competition with the Convention Center but could grow from there into a large Convention Center activity; the interest simply wasn't there. And then, as you said, with the First Union Center, at the time The Cores State Center, coming on-line, freeing up space for the Spectrum, and in addition to that, recently the Apollo coming on-line, people are simply making market-driven choices not to use the Civic Center, even when they were directed that way. 22 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 So as a member of the board of the Civic Center, I was simply sad to see it not be used. But no one wants to use it. And that's what the bottom line has become. And, again, this project, in the face of the taxes and the jobs, both construction and permanent, I think it's probably the highest and best use for that site.
I think, Councilman, as you also might recall, I think we had originally hoped that, for example, the Auto Show and Boat Show would stay in this building and would get national shows. And, in fact, those organizations that put us in the Convention Center were not coming to Philadelphia, so we lost even the anchor uses we had, the old gate shows that used to be here.
Thank you, Madam Chair. Mr. Hankowsky, how much business has been 23 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 turned away? I understand there have been organizations, groups that have approached the management of the Civic Center and asked about its availability and have been told that it's not available.
Boy, I -- I am not aware that there is any significant number of people that quote/unquote have been turned away. I think, as we just discussed, one of the issues the City has faced is in what condition to keep these facilities. And so I think about a couple of years ago, the City made a decision to even cut back -- I think it was, I guess, '95, actually, when the decision was made to cut back the operation and fundamentally keep just the garage open. And so except for -- the example was Dinofest, which was just a one-of-a-kind -- you know, they just needed a big space to be in for a protracted period of time, that everyone else is either referred to either the Convention Center -- and as you know, the Convention Center does a significant amount of local business. 24 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 I think maybe nearly 1,000 events -- almost 1,000 events a year of local activity, groups that are looking -- you know, that are in our area, in the city, or they go -- as you recall, we also now have, as I mentioned, both arenas. And we have even used the arenas for local events, so that the Chamber of Small Business Fair has been at the arena, it has been at the Convention Center. So I am not aware of anybody significantly asking for that building.
Is it safe to say that there has been no active marketing or sales efforts to --
So if, in fact, there were an effort to sell it, to make it available, there is that potential that there could be business there? There has been no 25 active effort? 11/30/98 - WHOLE - BILLS NO. 980784 and 980785
Well, I guess I would tend to agree with Councilman Kenney, that the experience is that when we try to tell people to use that building, they said they didn't want to use that building, that they wanted to be in the Convention Center; they wanted to be in the new building. So I would not agree that there would be particularly -- and as I think back at the time, the City was looking at, quote/unquote, subsidizing the operation of two buildings, it was a negative. I mean, we weren't making money on the building. It cost us money to have the building there. And as you know, we do support the Convention Center's operation in the same way and that, in effect, the City was having to, quote, pay twice: once to keep the Convention Center there, and once to keep the Civic Center there. So if the actions that Council has taken from a budget perspective in terms of the appropriations that are available for that facility -- basically the appropriation now is simply enough to keep the garage open. 11/30/98 - WHOLE - BILLS NO. 980784 and 980785
Thank you, Madam Chair. But I can see on the other side that Councilwoman Blackwell has her light on, and I know that this location is in her district, so I will defer to her.
Thank you, Madam Chair. Thank you, Councilman Nutter. I believe that after many meetings and much discussion about this project that certainly there are many of us who love the area and love the old building. But I must say that the proposed use can do so much to change medicine. And we already have a wonderful hospital, treatment area, complex in West Philadelphia, and that covers not only this 27 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 region but this country. And what this would do is not only put us far ahead, but save some lives. The difference that it could make certainly in the lives of people throughout the world far outweighs all of the other considerations of us losing this building as it now is, and all of the other work that has to be done certainly to get us here, from here to there. So I will certainly ask my colleagues to consider the proposed use and the difference it will make to humanity. Thank you, Madam Chair.
Thank you. Councilman Nutter, do you want to be recognized now?
Briefly, Madam Chair. Thank you. Mr. Hankowsky, two quick questions: One, is there anyone from a public employee standpoint working at this particular site right now?
I think the answer is no. The garage is on a -- I believe it's a 28 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 month-to-month contract with a -- you know, with a parking management firm, so they operate the garage. I believe there is a minimal security presence. But I believe that might even be --
Private. So there is no one -- there is no -- the employees that were there and the impact on them was dealt with, I believe, in 1995 when as part of the budget process we took out the appropriation to operate the building. Those employees were absorbed in other vacancies within the Government. No one was laid off.
So your testimony today is that this transaction at this point has no impact on any public employees?
Secondly, on your facts sheet on , the values for the parcels, I understand that the value on Parcel 2 is at $1 because you are giving consideration to the University for the cleanup and demolition on $15.4 million; is that correct? 29 11/30/98 - WHOLE - BILLS NO. 980784 and 980785
How did you come to the value on Parcel 1 and Parcel 3?
We did appraisals of the property -- excuse me. We did appraisals of the properties, and it's done on a per-square- foot value. So if you do the math, it comes out on a per-square-foot value. And the cost that Penn is paying for, the demolition and environmental cleanup, exceeds the per-square-foot cost that they would pay if it were a cleared site. And the costs for the demolition have been provided by contractors so that we've gone from original estimates to now actually the contractor proposals.
Given the unique nature of this particular site, how are you able to come up with comparables for square footage evaluation?
We compared them, in fact, in part to sales across the street -- 30 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 which, of course we were involved with. "We" meaning the public in general.
(Continued) -- and other sales in West Philadelphia. That is, if you kind of look across the city on a per-square-foot basis or per-acre basis, as you can see by these numbers, fairly substantial prices compared to most other parts of the city.
I understand. What are the per-square-foot and per-acre numbers?
It's around $40 to $50 per square foot, and so it's about a million, a million and a half per acre, I think, which -- I mean, just to give you a comparable, the most valuable entity airport to build a hotel on is going at about $600,000 an acre. So these are pretty substantial, robust numbers. 31 11/30/98 - WHOLE - BILLS NO. 980784 and 980785
They do want them, yes. And I think to pick up on Councilwoman Blackwell's comments, in a time when we have all faced the prospect of our health industry being in trouble, to have two of our very strong anchor institutions, Children's Hospital and University of Pennsylvania Hospital, looking to expand and become, you know, both regional and national centers of excellence. I think the benefit is terrific. And to get money for it I think is just icing.
I understand. And I am not disputing any of those points. Lastly, what involvement do we have through this transaction? Let me strike that question for a second. What is our financial involvement in this transaction?
The City's financial involvement is, one, that we have agreed that we will apply for funding that may be available from either the Commonwealth of Pennsylvania or the Federal Economic Development Administration to 32 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 deal with certain utility questions related to it. If those applications are unsuccessful, we are not committed to backstop those applications. You will see in the City Capital Budget a line item which deals with one sewer line that traverses the site -- it really doesn't serve it; it serves West Philadelphia. And in consultation with the Water Department, they said that they will probably end up sometime in the next several years having to fix it anyhow. So there is a request for $1 million that deals with this one utility line that in three years we might be doing anyhow. That's our total exposure.
Okay. Lastly, what is the project plan as it relates to the minority female and disadvantaged businesses both with the demolition work, the construction work and the eventual permanent jobs and the contracting that goes with this project?
I'm sorry. What -- I was just handed a note, I apologize. I will 33 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 correct my earlier answer since I have just been provided with a fact. There are three city maintenance employers that do work out there.
Three city maintenance workers that periodically go out there the Civic Center but who would remain on City employment.
Oh, they will continue to be out there while we have the three other buildings in the near term. They are providing the security and making sure that the pipes don't break.
For Pennsylvania Hall, Convention Hall and the Museum Building.
So they are not losing employment as a result of this project?
I'm sorry, your question was -- 34 11/30/98 - WHOLE - BILLS NO. 980784 and 980785
My question of you was: The project plan for demolition, construction, construction jobs, permanent jobs and supplier network for goods and services on this project as it relates to the use of minority, female and disadvantaged businesses, what is the project plan for this project?
The specific project plans have not been fully developed, and as I mentioned, would be part of the definitive agreement. I think both the University of Pennsylvania and Children's Hospital could comment on both their experience and what they perceive doing here, if you would like to at this point, if that would...
There will be definitive percentages both for -- and it will be the entire process. It will be professional services --
-- through 35 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 demolition, through construction.
It will be done -- it will be in the documents between PAID and the institutions. It will be reviewed by both City Council's technical staff, Ms. Hamilton, as well as the City.
At the current time, it would not be a plan that comes back here, per say, that is right. In a formal approval sense, that is right.
So we might find out about it; we might not find out about it?
You will find out about it. We will absolutely consult with Council.
Is there more detailed information available at this time?
Yeah. I think John Frye, the executive vice-president from the University of Pennsylvania will be prepared to comment. 36 11/30/98 - WHOLE - BILLS NO. 980784 and 980785
I'm John Frye. I'm the executive vice-president of the University of Pennsylvania.
Sure. John Frye, executive vice-president of the University of Pennsylvania. Councilman Nutter, maybe by way of illustration I can talk to you about a project that we have under way right now at 36th Street and Walnut, which is the construction of a $90 million retail and hotel complex called Cents and Common, because it has been the benchmark that we have used to date to sort of establish where we are going to head to our voluntary NBE/WBE Programs. As I mentioned, it is a $90 million project. It represents the largest private commercial investment in the history of West Philadelphia. It is a volunteer program. 37 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 To date, 40 percent of the construction contract awards have been awarded to minority women, businesses, and 33 percent of the construction employment or about 50,000 hours, have been awarded to NBE/WBE firms. And, in addition, 137 West Philadelphians have been involved with this project to date in terms of employment. Again, it's voluntary. It is something we very much believe in not only for this project and the Civic Center Project, but all of the projects that we will be taking going forward from a construction standpoint. In thinking about the sort of components of this, there is a couple of different things: One I have mentioned, which is client commitment. The University, as the client of the various construction firms and developers will continue to insist on high levels of participation. And 40 percent on the construction, I think, is a pretty good benchmark. And as you can see, if you have been by the site, the project has gone beautifully. I 38 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 think it has gotten all sorts of wonderful opportunities for those firms. We have a very strong committee of representatives, a nine-person committee which includes our councilwoman, Mrs. Hamilton, from the city council president's office, several community representatives and several technical representatives. The University has also retained the Greater Philadelphia Urban Affairs Coalition to run the whole project. So we thought this through, we are very committed to it, and we will continue to push forward on the Civic Center Project as well.
And so you plan to utilize this particular model as your project plan, and that's what's --
-- going to be incorporated into the documents that Mr. Hankowsky made reference to?
All right. Thank you. 39 11/30/98 - WHOLE - BILLS NO. 980784 and 980785
I should just point out, just emphasize the point, that Cents and Common, there is no agreement. I mean, Penn did this voluntarily. It is public support. They are just great people.
We really believe in this. It is a very important thing for us.
And there is a representative from Children's Hospital, too, who will be happy to comment.
Certainly. Why don't we just pull up another chair at the table, please?
Let me note that we have worked very, very closely with the University on their projects with regard to Women in the Minority Business Development in these past projects. So we have come a long way. And, in fact, with the work that SEPTA is doing, this also includes Councilman 40 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 Nutter's area from 46th to 63rd, they have called on Penn as a model for how to set it up and how you get it done. So we work closely, and it is working well. And their commitment is certainly to the area and to the minority and female participation. Thank you.
I just thought it was important to get whatever information we can get on the regard.
We've been down this road a couple of times in the past, so appreciate it. Thank you.
Good morning. It's my pleasure to address Council this morning. My name is Jeffrey Rives, and I am the executive vice president of the Children's Hospital of Philadelphia. With specific response, Councilman Nutter, to your question, I can give you a few benchmarks from the previous experience at the Children's Hospital of Philadelphia. 41 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 Most recently, the Children's Hospital completed a project in 1997 in West Philadelphia; it was our Cobbs Creek Primary Care Center. Approximately 100 percent of that work was NBE and WBE, and that was a project we are very proud of. And it has provided a vital service to the West Philadelphia Community. In addition, in 1995, we opened our Abramson Research Center on the campus at Children's Hospital. That project generated approximately $20 million in value of NBE/WBE construction and design activity. Certainly those would be our benchmarks moving forward with any project on this site.
Thank you. Thank you very much for that information. With regard to the first project, you know, if you can't do better than 100 percent, then, you know, I'm really not interested in what you have going forward.
Yeah. You've got 42 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 a ways to go. Thank you.
Thank you, Madam Chair. I have one question. Yes. Good morning, I have questions, too, about the minority and women's opportunities for contracting and employment. And I just want to say that I have the same sentiments that Councilwoman Blackwell and Nutter has. And I'm glad that Councilwoman Blackwell has been working so close with the two agencies. What I would like to know: How many of the permanent jobs are going to be full or part time.
I can give you a general answer with respect to Children's Hospital. For the facility we plan to construct for this site, we anticipate approximately 600 positions. I would say 80 percent plus would be full-time positions, approximately 20 percent would be part time. That's an approximation. 43 11/30/98 - WHOLE - BILLS NO. 980784 and 980785
We are very early on in our planning process for the facility, but I would say that we're probably at about a 5 percent figure for minorities. 6
All right. 10 Thank you. 11 Thank you Madam Chair. 12
Thank you. 13 The Chair recognizes Councilman 14 Cohen. 15
This question will 16 go to each of the two gentleman who testified, 17 one for the University of Pennsylvania and the 18 other for the Children's Hospital. 19 With respect to minority construction 20 employment, I heard the representative from 21 University of Pennsylvania say that there were 40 22 percent minority employees. Do you have a 23 breakdown of what percentage at each job level? 24
I don't have that on my 25 person, but I could get that right away. We do. 44 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 We do try by those specific categories, yes. Absolutely.
We would like to have that. And the same question, and I will accept the same answer from the representative of Children's Hospital: If we would have a breakdown of what minority employment is at each construction level position?
And then one other one to both representatives: There was recently a comment in one of the newspapers, I think within the last week. I think it came from the state representative. And it was in connection with the baseball stadium issues. But it had relevance. There was a reference to the fact that at construction sites, the cars overwhelming carry New Jersey or Delaware tags rather than Pennsylvania tags. So I would appreciate information with respect to the residents of the job workers, the same group that I discussed before. Can that be furnished? 45 11/30/98 - WHOLE - BILLS NO. 980784 and 980785
That certainly can be finished by Penn. I can just tell you on the Cents and Common Project that I referenced in my response to Councilman Nutter's question, we've had 575 Philadelphians work on that project, and 137 of those have been West Philadelphians. We are very mindful of the fact that we like to keep as much of the business in Philadelphia as possible. And we can furnish you with that information.
Good. I would be very happy to be able to join in the general congratulatory efforts, if it turns out that the equation of minority employees is fairly spaced throughout the level of the construction jobs. Thank you very much, Madam Chair.
You're welcome, Councilman. Are there any other questions for Members of the Committee? Do you have anyone else to testify on these bills?
The Planning 46 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 Commission, I believe.
I would like to say that I am on the board of the Cents and Common Committee. They meet pretty regularly, and we have really hand-walked and evolved into this process that works. So I certainly can make any data available for what has happened with regard to Cents and Common to date. We get regular reports. And I am on that committee, and I am glad to make that a part of any record, if my colleagues would so like.
Do you mind if Mr. Pizzi testifies first, because he has another commitment?
Good morning, Madam Chairwoman. My name is Charley Pizzi, I'm the President of the Greater Philadelphia Chamber of Commerce. 47 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 I will, just for the sake of brevity, give you a brief overview of my testimony. I believe members of council have had the testimony.
Madam chairwoman, Members of City Council, I am here to talk about the conveyance of the Civic Center Property to the University of Pennsylvania and Children's Hospital. Approximately 12 years ago I was commerce director when we had a similar situation with the PGW Site, which Bill Hankowsky has talked about how well that has worked to benefit the citizens of Philadelphia. The Chamber three years ago did a study on the health care industry not only in Philadelphia but the entire region. Here we have two major institutions, and it talked about consolidation of the health care industry and of 48 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 a loss of jobs. In this situation and with this conveyance, we actually have two institutions that are world renowned. And we will then benefit for their -- for their investment on this property because they have this global vision, which continues to help the City become an international player. And recognizing the number of jobs that can benefit, and the high paying jobs -- the entire neighborhood of West Philadelphia and the entire city -- the Chamber of Commerce is extremely excited about this transaction and what it can mean with regard to jobs as well as the breakthroughs in medicine and biotechnology that this could have for our region. So we are very much affirmative for this project and stand enthusiastically behind it.
Thank you very much. Any comments or questions from Members of the Committee? Thank you. 49 11/30/98 - WHOLE - BILLS NO. 980784 and 980785
Good morning, Chairwoman, members of the committee. My name is Rich Lombardo from Philadelphia Planning Commission hear today to speak on behalf --
I am sorry. Richard Lombardo from the City Planning Commission here to speak today on behalf of both of these bills. In the interests of time, I will be very brief. The Planning Commission at its meeting of November 19th, 1998 recommended approval of the zoning bill, Bill No. 980784. And also they recommend approval of the property bill with one caveat, and the caveat being that at the time these proposed buildings reach their final design stage, they come back to the Planning Commission for review and comment. This is the similar way we handle the buildings on the PGH Site; it work very well. We didn't slow the process. Everybody, I think, benefited from the comments of our Commission on the design of those buildings, and we would make that same recommendation here. 50 11/30/98 - WHOLE - BILLS NO. 980784 and 980785
Thank you. Any questions from Members of the Committee? The Chair recognizes Councilwoman Blackwell.
Madam Chair, I submit the report that can be made available to all Members of Council at some point. It is the most recent -- the October report for the Cents and Common Project. I understand that is too detailed to be made available now, but I submit it to the Chair so that it can be duplicated and passed out at some point.
Thank you, Madam Chair. I think I want to ask Mr. Hankowsky this question, so if he could come to the table, I would appreciate it. Mr. Hankowsky, has there been an analysis done of what impact this will have, this growth, this expansion on our existing medical 51 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 facilities. The climate -- you're in the area right now -- what studies or what research has been done to see what negative impact this will have on other health institutions in Philadelphia?
There has been no 8 sort of third party analysis. We haven't hired a firm to go out and analyze this. But let me make a point of what is happening here. Children's Hospital is proposing to develop research, medical office types of facilities. We are not adding hospital beds. We are not adding -- we are not building a bigger hospital in the way we normally think of hospitals in either of these projects. And I think both of these institutions are very mindful of the competitive nature of the industry today and really what they are doing, as Mr. Pizzi mentioned, is adding services, treatment facilities. Hence, focus will be on cancer research and treatment in areas that aren't happening in this region today. Penn is looking to establish basically a regional cancer treatment facility. 52 11/30/98 - WHOLE - BILLS NO. 980784 and 980785 And they are a designated national cancer center by the Federal Government. So these really kind of augment the kind of facilities we are talking about today, and they are not really, you know, as I said, expanding our hospitals per se.
Oh, they'll compete. I mean, obviously. But what we are doing is strengthening two of our premier institutions. As you know, Children's Hospital is always ranked as one of the top one or two children's hospital in the country. And this will continue there. University of Pennsylvania is always ranked, in many categories in national surveys, as one of the top medical institutions in the country. So they believe that to remain at that level -- and they get patients not only from this area but from around the world to these facilities. And to be able to do that, they need to be able to expand and have those types of facilities. 53 11/30/98 - WHOLE - BILLS NO. 980784 and 980785
Thank you. Are any other questions from Members of the Committee? Do you have anyone else to testify on these bills?
My name is Ken Sipos. I am with the Department of Public Property.
Excuse me. The noise level is rather high. Anybody having private conversations, I suggest you do that in the corridor so that we can hear the witnesses. Thank you.
Madam Chairwoman, and Members of Council, I am here today representing Public Property to testify in support of Bill No. 21 980784 and 980785. This bill will allow the cleanup of the site where the Civic Center is and it will allow the development of medical research, patient treatment, office and ancillary 54 11/30/98 - WHOLE - BILL NO. 980788 commercial space in addition to two aboveground garages, 2700-car capacity, and a 900-car below ground garage. The Department of Public Property supports this measure. I respectively ask that Council approve Bills No. 9780784 and 980785. I also ask Council that the rules be suspended so this ordinance may be passed upon second reading at council.
Thank you. Are there any questions from Members of the Committee? Thank you very much, sir.
Do we have anyone else to testify on these bills? Say none. We will now consider Bill No. 980788.
An ordinance amending Title 19 of the Philadelphia Code entitled "Finance, Taxes and Collections" by adding a new chapter, 19-3200, entitled "Keystone Opportunity Zone" to provide the contingent exemption, abatement or credit of certain taxes within a 55 11/30/98 - WHOLE - BILL NO. 980788 specified geographical area designated within this new chapter under certain terms and conditions.
Who is testifying on the bill for this administration? Mr. Mullin, please approach the table. Mr. Mullin, do you have testimony to be circulated.
Good morning, Mr. Mullin. Please identify yourself for the record and please proceed with your testimony.
Good morning. My name is Stephen Mullin. I am the director of commerce for the City of Philadelphia. And I would like to present testimony this morning. I also have some backup materials that we will be distributing to councilmembers here as I begin my testimony. I am also joined sort of in the audience today by members of my staff, members of the PIDC staff, Nancy Kammerdiner, the revenue commissioner, and members of the law department, 56 11/30/98 - WHOLE - BILL NO. 980788 and members of the City Planning Commission, all of whom have been party to the development of the Keystone Opportunity Zone Legislation and our application.
Yes, it is. I don't think we -- I know I have not received copies of testimony on any of the bills before us this morning. So whatever we're seeing, we're seeing for the first time today.
We have seen nothing. Why hadn't this been circulated prior to today's hearing, Mr. Mullin?
Pardon me? Has any of 57 11/30/98 - WHOLE - BILL NO. 980788 it? None. No, it has not.
Why would it not have not been circulated prior to this very moment?
We were working during the -- during the beginning and middle of last week. We had been request to look at some hundred additional parcels, which we went over and included and actually didn't even finish reviews of through the revenue department until Friday. So we have been actually working to finish up this, the actual parcels to be included.
There was, to my knowledge, one communication on this matter, I believe, a couple of weeks ago. There were, I think, a couple pieces of paper. One was a copy of the house bill that allowed for these and a couple other sheets of paper which have words on them but provide very little true information about this. I mean, I plan to be here for the duration, so it's -- time is not a problem. But I 58 11/30/98 - WHOLE - BILL NO. 980788 would at least like to establish for the record that it is a little difficult to deal with a project of this magnitude, receiving testimony and two packs of amendments on the day of the hearing.
So I don't know where this is going to end up. I don't know what the timing is on this project, but I think as we've seen in recent times as of last week, some people actually like to read the stuff that they get lest they end up passing things that they don't know what are in them. I would like not to fall in that category, Madam Chair.
Mr. Mullin, is there a deadline date on the passage of this bill?
We have to have this bill passed by the end of this council session, because it has to be included as an appendix to our application to the State for Keystone Opportunities Zones, which has a submission deadline of December 31st.
Well, when did 59 11/30/98 - WHOLE - BILL NO. 980788 this start Mr. Mullin?
How many Members of Council have you talked to about this since last spring?
Through briefings, I think the majority, but I can't say everybody.
Are you talking about the briefing down at the mayor's office or are you talking about personally including (unintelligible.) --
Did you share any information at these briefings, or did you talk about the concept?
I think primarily I would say both; we shared information. The vast bulk of what's in front of you now, even though it looks bulky and I respect the comment about the -- I understand the comment about knowing 60 11/30/98 - WHOLE - BILL NO. 980788 what's in the bill. The vast bulk of what we are presenting today are the legal definitions of the boarders of particular parcels that we are talking about. It turned out that that -- that that turned into an absolutely insomniac theater effort here to actually put the parcels and define the contiguous natures of the subzones. So the vast bulk of what you see this morning is actually a refinement of what was -- what was presented in sort of broad categories with the introduction of this bill.
And in those briefings or discussions, did you talk about these specific areas or the boundaries --
We talked about in particular -- we talked about some of the broad areas and in some cases particular boundaries. But it hasn't been -- but all of the time we were continuing to refine the specific boundaries and the specific parcels. 61 11/30/98 - WHOLE - BILL NO. 980788 All throughout we've been endeavoring to try to make sure that we don't include parcels where there is current business activity or that do not have good development opportunities. Now if we do understand that there are development opportunities, we wanted to back those up.
I understand that. I am just talking about process. This has been going on since last spring, but we get all of our documents on the day of the hearing. And now you tell us, as is often the case, that if we don't do something right now, we miss a deadline and it's all over and it's our fault. And that's basically what you are going to tell us at the table this morning, right?
I don't know if I would be directing, assessing fault like that. It has been a very long process.
It's what it ends up being, right. All right. I just want it noted for the record. We will see what happens. (President Street returns as Chair.)
Please proceed. 62 11/30/98 - WHOLE - BILL NO. 980788 Does any other councilmember have any other procedural concerns before we get started with the formal testimony?
Councilman Cohen joins in Councilman Nutter's comments; the record will so reflect. Anyone else? Mr. Mullin, please proceed.
Thank you. I am here today to testify on behalf of the administration, to testify in support of and offer amendments to Bill 980788. This bill would authorize the establishment of 12 subzones and a Keystone Opportunity Zone in the City of Philadelphia and authorize the tax payments and -- excuse me abatements exceptions and credits required under the state legislation that carried the KOZ program. These authorizations are contingent upon the Commonwealth selecting the City as one of the 12 KOZs statewide. And incidentally, the timing is the 63 11/30/98 - WHOLE - BILL NO. 980788 applications are due December 31st of this year. We have anticipated that the State will make selections, stateside selections, awarding the zone sometime in either February or March. And we understand that those awards will be retroactive to January 1st of 1999. This KOZ program is a new state initiative modeled after Michigan's Renaissance Zones. Under this program a property owner and/or business located in a KOZ will effectively pay no state or city business taxes, no real estate, or no use in occupancy taxes for 12 years beginning January 1st, 1999. Our goal is to promote capital investment in neighborhoods, attract new business into the city and help existing businesses expand and grow here in the city, all of which should increase employment and strengthen the City's economy. The waiving of these taxes will provide a very strong incentive to locate in these areas and invest in modern physical plant and business infrastructure. I would like to submit today several amendments and request your favorable 64 11/30/98 - WHOLE - BILL NO. 980788 consideration. The first set of amendments, and I note that is the giant bulk of the paperwork here, establishes the subzones and their particular boundaries. The bill, as introduced, listed areas to be included with no specific boundaries. Since introduction, we have done extensive reviews of sites suggested to us by City councilmembers and State-elected officials, and as a result have removed one from consideration, that PGW Site was originally listed, as an insufficient area for inclusion, and consolidated a few sights to create one subzone from a few separate sites, most notably along the Delaware River, and added a few sites that were not on the original list. These changes are all outlined and the proposed subzones are illustrated in the maps in your packet. In the aggregate we are proposing approximately 1900 acres for inclusion. The State allows up to 5,0000. What I do want to call your attention to in the information that you have been 65 11/30/98 - WHOLE - BILL NO. 980788 provided, and it is bulky, the first batch is the proposed amendments themselves. And about 98 percent of those are the legal descriptions of the properties. The second batch has a "Sites Proposed for Inclusion," a summary, which lists the subzones and gives you the feel for the 9 types of parcels that are included. In all, 10 there are over 350 parcels included in our 11 proposal here. 12 And following up, that is a map of each one of the subzones prepared by the City Planning Commission with information about each one of the BRT parcels included here. So each one of the subzones has a map and a listing of the specific parcels as well as the summary, the summary showing the 350 parcels and the 12 subzones. The second set of amendments are technical amendments that resulted from discussions among the law department, revenue department and the state departments of Revenue in Community and Economic Development. One makes it clear that all demolition liens and liens 66 11/30/98 - WHOLE - BILL NO. 980788 arising out of any code violations must be paid off in addition to delinquent taxes. We had always said that we want to make sure no one can get -- no owner of a property or business can get any benefits if that property or that owner or that business is delinquent in city taxes.
We wanted to make sure we even strengthen that by saying no one can get the benefits of these taxes if they have any outstanding liens; for example, demolition liens in areas where we have spent money or code violations. In other words, we want to make sure anybody taking advantage of this is completely current on all fronts with the City. We think this addition here strengthens that. And another emphasizes that any exemptions authorized in this ordinance are ultimately contingent upon State designation as a KOZ. If a parcel is removed before the application is submitted, it would not be exempted from city taxes only. In other words, as we mentioned, since there might be things coming up that would 67 11/30/98 - WHOLE - BILL NO. 980788 say that we can identify another type of use for a property that we wouldn't want to have in a KOZ before the December 31st deadline, we would want to be able to take that out. This legislation would not let it -- would not let that property owner later on say, even through we weren't selected as a KOZ, we have the City Council that has said you don't have to pay city taxes here. The benefits of the tax exemptions will only accrue if it is in this legislation and agreed to by the State in the application. There are a couple of other technical definitional amendments. I will defer to City Solicitor Rich Fager (ph) a little bit later to talk about those. But I do want to switch -- I do want to concentrate on the proposed amendments that talk about actual boarders. In consideration of where to locate the KOZs, the City team started out with some very basic concepts. First, this was never meant to be a revenue giveaway program but an investment program to help grow and attract businesses in the city. 68 11/30/98 - WHOLE - BILL NO. 980788 Secondly, the City can ill afford to lose any substantial tax revenues; and by the way, I note not only the City but also the School District. Third, this should be an economic development project focused primarily on manufacturing industrial and warehouse distribution sectors as opposed to a residential development program. Finally, we want it to be fair to existing businesses, so we work to minimize any existing businesses in the proposed zone. Given these general guidelines, we came up with some additional guidelines to focus our search: concentrate on vacant, abandoned, environmentally challenged, and tax delinquent and/or otherwise underutilized land or buildings. We also wanted to look a publicly owned vacant land, such as PIDC Industrial Parks, which is a top priority for us since they offer us a great opportunity for development and currently generate no tax revenues. Properties should be of a developable size to that, and 69 11/30/98 - WHOLE - BILL NO. 980788 properties should be available to be developed in a reasonable amount of time although the incentives for any private -- would certainly with a 12-year time clock ticking would probably be stronger than any incentives we would have to try to get them to go out and try to develop, utilize the land a lot more intensively than currently. Based on these guidelines, we scoured the city for sites that met these guidelines, initially identifying about 30 areas that might work. Analyzing revenue effects, size limits, known development planned for each area and applying similar criteria from our guidelines, we eliminated some areas, consolidated some and came up with the list that is now before you of the 12 subzones. 6 million this calendar year. In all likelihood, we believed these annual revenues would decline each year as more and more of these properties become delinquent and underutilized or further underutilized. 70 11/30/98 - WHOLE - BILL NO. 980788 Roughly this is comprised of $1 million in property taxes -- I'm sorry. $200,000 of UNO, and $400,000 of BPT, Business Privilege Tax. Actual property tax collections are less than 700,000.
So as you can see, in these areas, which roughly total 1900 acres and include more than 350 parcels, they not very high revenue producing areas to begin with. Our legislation also requires businesses to be current, as I mentioned earlier, on all taxes and with this amendment carry no 14 outstanding city liens or violations in order to be eligible for the benefits under the KOZ program. 5 million in L&I liens. We project that a significant portion of these delinquencies are collectable and therefore would prove to be and up front windfall for the City and the School District. In addition, six of these properties are on L&I's hot list for demolition. And this 71 11/30/98 - WHOLE - BILL NO. 9 million. Hopefully under the incentive of the KOZ program, an interested party will come in and demolish the property at his own expense, thus saving us the expense in returning the property to productive use as well as eliminating a land use cancer in the specific area. Michigan initiated its renaissance perhaps roughly months ago, and they report 14 that statewide in the first year, 54 projects 15 have been initiated, which expects to create 16 4,000 jobs. Total investment in these 17 projects -- that's stateside remember. 18 The total investment in these projects is estimated to be over -- in these projects is estimated to be over $322 million. Also, in spite of the fact that that is yet to be publicity on the KOZ Program and no 23 real marketing done by either the State or the City, we have received a fair amount of calls from businesses looking to expand in the city and 72 11/30/98 - WHOLE - BILL NO. 980788 most notably from outside of the State. One example is a California high tech company is waiting to hear if Philadelphia is selected as a KOZ. They want to open an East Coast manufacturing and assembly operation. If so, they can expect to open their East Coast facility here in one of the KOZ subzones. In addition, too, businesses on American Street have talked about expanding their operation, one into an old abandoned warehouse and the other to a vacant piece of City-owned land. Neither business could do this without the KOZ incentives. These three projects alone could create 60 new jobs, help retain 70 jobs, clean up certain areas and provide the city economy with modern new business infrastructure. The State legislation and City legislation addresses two major areas of concern: one, existing businesses in the state moving into a KOZ just to take advantage of the tax breaks; and the second case of people moving into a zone, taking advantage of benefits for a few years, then leaving. 73 11/30/98 - WHOLE - BILL NO. 980788 Both the state law and council legislation states that any business moving into a KOZ from within the state must either increase employment by at least percent in the first 6 year or make capital improvements to property 7 located in a KOZ equivalent to at least 10 8 percent of the company's gross benefits from 9 previous years. 10 And I would remind you that we are 11 talking about basically vacant or dilapidated 12 structures or vacant land. So anybody looking to 13 move into a KOZ basically would have to actually 14 invest specifically in a new plant and equipment. 15 In addition, there are recapture 16 provisions in the law that requires businesses 17 moving out of the KOZ within the first five years 18 to refund the State and the City up to two-thirds 19 of the exemptions, credits and abatements 20 received. Finally, a business moving into the zone with mostly vacant land and deteriorated buildings will have to make a substantial investment in the building or new facility doing substantial renovations on the existing building. 74 11/30/98 - WHOLE - BILL NO. 980788 To walk away from such an investment would be very difficult. Even if it did, a relatively new modern facility will be available for another business to utilize. The City's problems are rarely due to modern plant and equipment.
I believe this program will lead to a significant increase in the investment and development of modern competitive business facilities' infrastructure in the city. Most of you understand that a big hinderance to business attraction and retention is a relatively obsolete outmoded and depilated building stock. In closing, I just want to say that this Keystone Opportunity Zone Program is just that, an opportunity; an opportunity to attract manufacturing and other industrial businesses to the city that would otherwise locate elsewhere and to help retain and grow some of the businesses presently in the city which might otherwise might move out. I believe it will lead to investment in modern plant and equipment, restore many parcels to protective use and increase employment 75 11/30/98 - WHOLE - BILL NO. 980788 in the city. I request the rules of Council waived to allow this bill to be reported out of committee and have the first reading at the next council session. This will allow us to meet the State's application deadline of December 31st. And this concludes my prepared testimony as my colleagues and I are available to answer any questions you may have. Thank you.
Thank you very much. First of all, if this bill is passed and the application is made, and these zones set up, and if there is a zone -- and area, Keystone area on which the current zoning will permit residential -- could it, even if we don't anticipate it --
-- could the owner just do residential over our protest?
If it is zone residential? 76 11/30/98 - WHOLE - BILL NO. 980788
If it is zoned residential. We have very few parcels zoned residential, which we are looking at doing one or two things: either rezoning; or two, we have legislation that doesn't have to be at the same session, but legislation that will prohibit the development of residential -- residential development inside the Keystone Opportunity Zone. We literally have only about three or four blocks, most of that vacant and abandoned. And we are looking for those to be actually parcels that would be included in and assembled for other uses, nonresidential uses.
What I would like for you to do for me and for the members of this committee is give us the detailed written explanation as to how it is the administration proposes to assure councilmembers that this thing could not get approved and all of a sudden people start doing residential over our protest under circumstances that we might not have even conceived of at this time. The second question is: How do we 77 11/30/98 - WHOLE - BILL NO. 980788 protect existing businesses from competition in one of these areas? I mean, all of us -- I can tell you that I already have a situation in my district where the Navy Yard has caused a tenant in a very important location, has caused the tenant to be relocated out of that location into the Navy Yard based on the incentives. How do we protect not just against the moving around, say there is a company in some other part of the city, the state, the world who comes and now can compete, maybe in an unfair kind of way with existing businesses? How do you deal with that? And I would like to have something in writing on it. And last but not least -- that's good enough for now. The Chair recognizes Councilman DiCicco.
Thank you, Mr. President. Good morning, Mr. Mullin. As the Keystone Opportunity Zone relates to business facilities. Is there any possibility that in these areas that are designated that you can have a combination of 78 11/30/98 - WHOLE - BILL NO. 980788 industrial retail when the retail also qualify, or could it just be would retail qualify for that zone?
Retail -- if zoning is allowed in retail -- if zoning allows retail in any of these areas, and I believe in some cases it does, we have not moved to prohibit that. We have, in sites that we believe are obvious retail uses, we have not included those because it is not our intention to try to -- that would be probably the toughest part in the equity to provide one retailing outlet compared to another one inside the city as opposed to manufacturers who are really competing out in the world as opposed to competing against the company across the street when they are making some sort when they are assembling or manufacturing or distributes.
Let's assume that we have a situation where we may want to encourage some development, and the only development that would be appropriate for that area would be retail. An I will use the Schmidt's Brewery as an example. 79 11/30/98 - WHOLE - BILL NO. 980788 That could probably be industrial there, but the likelihood is that it may be more beneficial or more attractive for a developer that wants to do retail, a strip mall, what have you. Would they be excluded? Or could they be included in this zone?
That particular site is not included. But other sites where someone does look at the potential for retail development would not be excluded subject to existing zoning. Our basic thinking is the following on retail: Generally retail -- the land value of retail is higher, it has a higher value out in the marketplace than virtually any other use now. And to the extent that there are parcels where there might be only a couple of things hindering some part of the environmental or old outstanding tax delinquency or assembling parcels, as opposed to -- hindering the development, as opposed to the fact that that development would absolutely -- we can't even foresee anything that would have an economic 80 11/30/98 - WHOLE - BILL NO. 980788 feasibility there. we think that KOZ-ing it would end up being way too much of an incentive for retail than perhaps some of our other programs.
But I guess what I am getting at is, I don't know if we want to shut the door and do that.
And what is our ability and what role would Council play? Would Commerce have to come back to Council? Is it the zoning that would basically govern what happens there. Again I will use the Schmidt's Brewery.
I will defer to my colleagues in the law department. But I believe it is the zoning that would take over. After the legislation, the zoning would be the main way that City Council will keep any type of control or, you know, reason to have parcels come back in for any type of review. And in that sense, that's pretty much outside of direct financial assistance or tax 81 11/30/98 - WHOLE - BILL NO. 980788 abatements or tips. That's pretty much the way council still has for the rest of the 140 square miles of at the city.
Thank you very much. The Chair recognizes Councilman Kenney.
Thank you, Mr. President. Just to proceed on the same line of questions as Councilman DiCicco. When you look at a site like Schmidt's in its location, its proximity to both North Philadelphia and the River Front in an area that you can see or at least envision at some point in time truly becoming a renaissance neighborhood with not only perhaps light industrial but retail and other types of uses, why would we take a parcel that size and just ignore it?
And not include it? It is our belief that that particular parcel has value, has sufficient value for a development now 82 11/30/98 - WHOLE - BILL NO. 980788 and it is not -- it is not any fundamental problems dealing with holding that parcel up, but instead it is -- it's an ownership issue and issues with the city for current owner.
But as I pursue the list of properties and looked at the ownership and tax liabilities, some of them are simular in outstanding tax liabilities as that particular site.
It is not just tax labilities but also potential use. All lot of the one places where we have tax labilities, there isn't anybody interested in using that. For this particular site, we believe there would be people interested, and it is more a question of us just working out something with the current owner.
Additionally, the American Street corridor has been an empowerment zone for quite some time. And to the credit of many of the merchants and many of the business owners and property owners there, they have really struggled to keep that vision moving forward. 83 11/30/98 - WHOLE - BILL NO. 980788 What's wrong with the empowerment zone that has not allowed that particular area to progress? And what will the KOZ do different than what the -- I know there are different elements of KOZ versus the empowerment. But the empowerment zone doesn't seem to work as well as we would like it.
I think the simplest way that I would explain what the difference is, there is what the KOZ provides, a stronger financial incentive to develop something on any given -- compared to what we can provide directly or indirectly to a business. We have in the American Street -- in the enterprise zone and empowerment zone, for that matter, actually talked to many of the businesses there. Because there was one question, would someone like to have -- would someone like to see if they have a business in Parcel A and Parcel B that's KOZ'd, what happens? Well, more often than not, people there are basically, one, happy to see development in areas that along their -- along 84 11/30/98 - WHOLE - BILL NO. 980788 their strips or in their commercial are industrial areas to see actual development there after seeing years and years of not. The second thing is we know that every one of the existing businesses have an opportunity to go in and purchase offer expand or have operations there. Once the KOZ is designated, that parcel, if it is privately owned, is out on the market place. And one thing I think is very important to note is what will happen to those parcels to the extent that there is potential use, their market value, their value, will increase. And it will increase. And it will be bid up by the -- it will be bid to the level of the highest and best use potential for that. So when someone says, but what about these guys, they are paying no tax here, chances are they will have paid significantly more for that property than the person who doesn't. The markets have a way of equilibrating that. And our hope is that the market value, the uses, will lead owners or potential 85 11/30/98 - WHOLE - BILL NO. 980788 users to be able to find that they can privately -- now that they don't have taxes -- clean up the parcels, invest in the building and new infrastructure there, and help all of the businesses in that particular area.
Of the sites 8 you are recommending, I notice that two three are 9 empowerment zones or enterprise zones. 10
How many are 12 there that are in empowerment and/or enterprise? Is there an upside?
There are three. And, in fact, your question reminds me indirectly that I forgot to go through this list, which I apologize for, and I would be happy to do that. But to answer your question directly, West Parkside and American Street are two -- are two of the empowerment zones. And a portion of -- by the way, American Street and the North Central -- there is a portion in each -- for the state enterprise zones, we have areas along the port, we have American Street Enterprise Zone, we have an area in Hunting Park West Enterprise Zone 86 11/30/98 - WHOLE - BILL NO. 980788 and also West Parkside is part of -- both a State Enterprise Zone and Federal Empowerment Zone.
When it comes to the property owners being current before being approved as a KOZ on the real estate taxes, does current mean paid off or agreement in place? Do they have the opportunity still to pursue, to pursue tax relief for the Board of Revision of Taxes or for the Tax Review Board? What are the standards of that?
Yeah. And our lawyers say there is an agreement in place, number one. And I believe that they still have -- there's not anything -- may I ask Rich Fager to join me here?
Richie Fager from the Law Department, Divisional City Solicitor. The answer to your question is, any agreement in place or anybody who was pursuing in good faith an appeal of a tax bill before the BRT 87 11/30/98 - WHOLE - BILL NO. 980788 or any appropriate tax work.
And this would be despite the length of the delinquency? The property has been delinquent in taxes for 6 years, 20 years, although they are already here 7 for that length of time. 8 They would also be eligible to come 9 in now, once this is promulgated, that they can 10 apply to be a KOZ, come in now and make a deal, 11 and be, I guess, relieved of the responsibility 12 that they haven't upheld in the last 15 years to 13 do anything about this deal. 14 For example, if you have a property, 15 you know, that the business or the owner of the company or the owner of the property fell on hard times and came on recently to set up an agreement and is doing their best to pay, then, again, you may have people here who have owed tens to hundreds of thousands of dollars in real estate over the past ten or 15 years that have made no 22 efforts to even pay attention, because we haven't really pursued any of this until we did the lien sale. But prior to that, people either 88 11/30/98 - WHOLE - BILL NO. 980788 committed an effort or they didn't. It would seem to me that a long-term delinquent property owner may now be getting some relief that he or she does not deserve.
I don't think that's the intent. I think quite the opposite. I think the long-term delinquent, if that person even exists, has to come clean in order to bet this benefit and come clean in some way satisfactory to the Revenue Department or the Law Department.
I think the notion of good faith there -- I mean, taxes and penalty typically on some of these, we are more willing to negotiate on taxes and interest and penalties if there has been signs of good faith and people trying to develop. And we know which people don't and haven't. And I doubt there is going to be any --
Do you have a total of all of that parcels? I know you may not have it with you today, but can you provide a total of all of the parcels involved that are being recommended as KOZs, the total of all tax delinquency both interest and penalties -- 89 11/30/98 - WHOLE - BILL NO. 980788
Yes, sir. It's very -- it's rough, but it's about $3.9 million.
It is broken down by parcel here. It is just a matter of what the total is.
And again, we think that at least one -- we are still looking, but we think that at least $1 and a half million of demolition liens from L&I.
I would also like to mention to councilmembers particularly, if there is any information that you think you need, now is the time to make that request. We will not be asked -- I will not make a recommendation that we vote on this bill 20 today but that any outstanding information that anybody has or requests, get it in the record today so that we can get the administration working on that. This hearing will be recessed until later in the week. We definitely want to make 90 11/30/98 - WHOLE - BILL NO. 980788 sure every councilmember has an opportunity to request any information that anybody wishes. The Chair recognizes Councilman Nutter.
Thank you, Mr. President. Mr. Mullin, on the first page of your testimony, you make reference to Michigan's Renaissance Zones. Can you share with us a little information about Michigan's Renaissance zones? I don't get up to Michigan very much.
Nor do I, actually. And I can share a very little on that. I am not thoroughly versed on this. The State government, State of Pennsylvania, modeled the KOZ proposed lap to the Renaissance Zone legislation there. The one thing that I would note, and I think it's very worthwhile to note this, Michigan -- the structure of Michigan's state and local tax system, like a lot of states in the Midwest, is very much different than Pennsylvania's. The typical tax burden for a business or an individual, the proportion that goes to the state as compared that goes to the 91 11/30/98 - WHOLE - BILL NO. 980788 locality is much higher in Michigan than it is in the State of Pennsylvania. So when the State of Michigan is looking at zeroing on taxes and requiring the local areas to zero in on their taxes, too, that is a significantly higher budget tax expenditure or investment on the part of the state government there. And hence, it has a significantly more -- more of an interest in making sure that its investment am pays off. And I am talking that being relatively speaking now. I am not just saying that the State of Pennsylvania isn't interested in this at all. But in terms of what -- what dollars are foregone and what taxes are foregone, it is greater in Michigan than here.
What are those taxes that is are foregone in the Michigan program?
I think it is primarily business -- some type of business taxes, state income and both individual and corporate and property taxes. Very similar to ours.
I thought I had 92 11/30/98 - WHOLE - BILL NO. 980788 read somewhere recently where Michigan, though, had instituted a prohibition on the abatement of any taxes for either school districts as an incentive to attract businesses to Michigan; is that true?
I think I heard that, too, but I don't know for sure. I can check.
I notice in your testimony that there is no mention made that I could find of the wage tax abatement provision which seems to exist in the bill on Item No. 6 on . Is there, in fact, a wage tax abatement in this bill?
Yes, there is. Wage tax and Pennsylvania State Personal Income Tax for people residing in the zone. And I think that's -- I mean, that was one of our reasons for not having a -- not having residential development included in the zones. If you live in the zone regardless of where you work, you don't pay city wage tax or 93 11/30/98 - WHOLE - BILL NO. 980788 state income tax. I think that probably is part of the -- that question and that issue, I believe, underlies Council President Street's request for a written explanation about what we are looking at in the residential prohibition.
That we are talking about right now, I think, sir, it may be about 40 or so right now.
Maybe about 40 or so in one area of a three-block area that we are looking at. Our intention is to zero those out or exclude those particular -- what do you call them?
In the American Street Subzone, in only the American Street Subzone, are 94 11/30/98 - WHOLE - BILL NO. 980788 there any residential -- currently residential properties.
And we have been deleting the ones that have current residents. But if they are dilapidated houses and, as I mentioned, can sort of be put together in assembly, ultimately we want to include those. And it is only in that subzone where there are some existing residential now in this legislation, but it is our intention to take those -- to take those out. A lot of those are the ones that we just started looking at and reviewing last week.
So then what is the purpose of having this provision in the bill?
It is a requirement of the State. The State require that the legislation, the local legislation -- it abates 95 11/30/98 - WHOLE - BILL NO. 980788 any local income taxes or wage takes.
So if there were residents -- let me make sure I understand how this is proposed to work. If a person is a resident in the zone and they are working somewhere, no matter where they would be working, whether in a business in the zone or somewhere else in the City of Philadelphia, that person, by the nature of their residence in the zone, would be exempt from wage tax and state income tax?
Well, notwithstanding what Philadelphia is doing, are you aware of other municipalities or cities or towns that are applying for this, that are allowing this provision to stay in as put in?
Chester is looking for Keystone Opportunity Zones separate from Delaware County. Delaware County, Montgomery County and Bucks County are joining to look at some 96 11/30/98 - WHOLE - BILL NO. 980788 industrial areas only. And I believe Chester has included some residential. And the State has -- the State including the governor has actually said he would certainly like to see some residential areas throughout the State in the -- in Keystone Zones. And I don't know whether that's -- what other counties are doing, rural counties or other counties. We have not heard from Pittsburgh whether they are including, or Allegheny County whether they are including residential areas.
It has been mentioned a number times either in newspaper reports or even -- and it may still be the featured item in the five-year plan that Philadelphia and Pittsburgh seem to lead the pack in terms of local tax burden as compared to some other cities across the country. Is that my 20 recollection of the five year plan? . 21
And in the bar 23 graph, it seems to indicate that a large part of 24 that is more of a function of the various state 25 taxes that are imposed as opposed to the plethora 97 11/30/98 - WHOLE - BILL NO. 980788 of various taxes that we impose at the city level; is that correct?
What efforts have been made over the past seven years to do anything about that?
Of the state taxes that apparently push us to the head of the list.
I understand. We've make some efforts to try to deal with our own tax situation. What are we doing on the state side?
Well, we have -- we have been in favor -- this administration has been in favor of the reduction of Corporate Net Income 98 11/30/98 - WHOLE - BILL NO. 980788 Tax. I believe we were in favor of the reduction of the Computer Sales Tax, the Computer Services Sales Tax that was enacted at the state level. In general, I don't know whether we actually proposed changes to the state taxes. But in general, when there are reductions in state taxes workers' compensation and other state taxes or state business costs, in general we are supportive of those reductions.
Well, I appreciate that. And notwithstanding, I mean, has that still essentially left us pretty much relatively in the same position?
Yeah. The study you were citing actually -- in the five-year plan actually was referring to, I think, a 1993 study. It was just -- it was just revised for 1998. And even though Philadelphia had -- the businesses -- this particular type of business that they had a standard business, even though it showed the biggest reduction out of the top 23 cities surveyed, basically the largest 25 cities 24 in the country, we were still the -- Philadelphia 25 was still the highest in tax burden. 99 11/30/98 - WHOLE - BILL NO. 980788 The reductions on the city side, I think, contributed significantly to that shrinking of the first-place gap.
Right. So the state tax reductions have not significantly helped us in any particular --
Probably. They have added -- they have reduce a little bit. But relatively speaking, other states are doing very similar things and potentially even --
I understand. So let me go back to my first question. Whether it is the '93 study or now the revised '98 study, what efforts is the City taking directly to lobby the state legislature and the governor for tax reform that might actually do something throughout the city as opposed to this piecemeal fashion that we are proposing here today?
I think -- my knowledge right now is basically none. We're concentrating sort of on our own taxes there and working on this Keystone Opportunity Zone legislation. Basically none. But there may well be some -- I will 100 11/30/98 - WHOLE - BILL NO. 980788 find out. But there may well be some bits and pieces we are looking at dealing with the state legislation.
Okay. What impact, if any, will this KOZ proposal have on our various or some of our various TIF Projects or TIF Districts? And is there a map that you have given individual locations on the parcels? Is there a city-wide map to show all of the KOZ areas?
I will get that. I do have one here that I was going to show, and just some general -- sort of in this area and this area. But the detailed maps are what are provided to you in your packet that show the exact parcels. But I will get a city-wide map so you can take a look and you can see the 12 areas.
If you would do me a favor and coordinate with Bill Hankowsky, who I have a previous request into, I would like a city-wide map that shows all of the KOZs, all of the TIFs, all of the special service districts, the empowerment zones and any other specific areas. 101 11/30/98 - WHOLE - BILL NO. 980788
And the enterprise zones that show you how the city is being carved up for either various tax incentive programs or, in the other case, increase assessments for people trying to improve their own areas.
So I talked over my first question. And my first question was: What's the impact of KOZ on the tax increment financing districts that we have been working on?
I think the only case where we have an existing overlap of TIF and KOZ is in the Naval Business Center. And I want to take it -- I want to ask Bill if we have carved out bits and pieces of Naval Business Center to exclude the KOZ. And it is our intention to, if there is an overlap, the KOZ would take precedent.
I will introduce Bill 102 11/30/98 - WHOLE - BILL NO. 980788 Hankowsky. And the question was -- Bill will introduce the bill again. And the question was, based on what with the KOZ taking precedence over any TIF area in the zone.
As Steve said, for all of the TIFs we've dealt with or have pending currently in city council, none of those are proposed to be at the KOZ with the one exception of the Naval Business Center. As you recall, at the Naval Business Center what we did was we created a large district, which was different than the other TIFs which were very project driven, where we outlined the project. So at the Naval Business Center -- and I appreciate all of these drawings in some cases may be difficult to read when reduced down to 8 and a half by 11. But at the Naval Business Center, we are proposing to include in the KOZ that portion of the shipyard currently vacant, no 23 businesses are in it right now. So it's old manufacturing buildings. And we think that the KOZ incentive 103 11/30/98 - WHOLE - BILL NO. 980788 would attract businesses there in a way that the TIF would not. We are proposing to take a portion of what is known as Girard Point, which is an environmentally challenged area that the Navy has told us about. So maybe this will help and maybe -- and what we will have to do is introduce when Council comes back in session, an amendment to the TIF Plan to de-TIF it, to take it out of the TIF. Because it doesn't automatically fall out by you taking this action.
Right. What I am primarily about is not the project-by-project detail. What I am interested in primarily is the tax revenue projections both for taxes being abated or taxes coming back to us. You have provided us with a fairly detailed project plan. My concern was, we abate certain taxes or TIFs and now with the KOZ, they are abated. My concern was: Any recalculations that may need to be done based on the impact of these two economic development tools; secondly, we had the discussion just last week and will 104 11/30/98 - WHOLE - BILL NO. 980788 have further discussion when the other two TIFs come to us about impact of these programs on specific taxes, the real estate tax and the use of -- the real property tax and the use of occupancy tax and their impact on the school district, even though there are net increases, you can't miss what you never had, and all of those various arguments. This is, again, one more utilization of an incentive program that ultimately results in a missing out of tax opportunity. And then, naturally, we have the "but for" argument. It is a consistency of concern about the loss, potential loss of unanticipated revenues especially as it relates to the school districts.
Thank you. Do you have any idea of when these maps will be available?
I think now that we know what the KOZ is, it should only take a couple of days, I would hope.
All right. Thank you. 105 11/30/98 - WHOLE - BILL NO. 980788 Thank you.
Thank you very much. The Chair recognizes Councilman Cohen.
In the definition portion of the bill, you defined both "domicile" and "resident." And the requirement for resident is that the person also be domiciled as well as being a resident. So that's a double test an individual must pass in order to qualify for the exemption on the wage tax; is that right?
Yes, Councilman, those definitions come right out of the state legislation. They are either verbatim or almost verbatim.
Does that mean say someone operates a very big business outside of any zone and that person buys property in the zone and establishes a genuine home there, would that exempt that person who has all of his income earnings outside of the zone; is that person eligible for a wage tax exemption? 106 11/30/98 - WHOLE - BILL NO. 980788
If the person actually is domiciled and resides in the zone, yes, although that is -- the administration is making every effort to make that almost impossible. But, yes, if the person lives in the zone, all of the income is exempt from state and local taxes.
What do you mean that the administration is making it nearly impossible?
Virtually all of the zone is currently zoned not-residential, and that small portion that Mr. Mullin described to Councilman Nutter before, that there are approximately 40 people living there right now on American Street, and there is some publicly-owned property, which is zoned residential, but that is in the public's control.
Wouldn't it be a good thing if people did come and live there? I am wondering, why are we discouraging it? That might be a question that Mr. --
That's actually a good question. And it is an issue -- the main reason why we were discouraging the residential -- I 107 11/30/98 - WHOLE - BILL NO. 980788 guess there was really three reasons: One is that we thought that -- again, we are trying to make sure that the revenue impact of this is as small as possible. Tapping into the wage tax base is something that -- we are talking primarily about land that doesn't pay any property taxes now or is vacant, dilapidated or severely underutilized, so we didn't want to tap into the wage tax base. The second area is, if you picked a parcel somewhere in the city and said people could live in there basically tax free, the property values would go up. Perhaps possibly the property values on the boarder right on the other side of the street, if you are not in there, might go down as people no longer want to look at your house to potentially buy because the one across the street offers this extra incentive. And we would be talking about some portion of the city -- you know, we have approximately 100,000 acres in the city. What little enclave or what little portion would end up getting this gift bestowed? And we thought 108 11/30/98 - WHOLE - BILL NO. 980788 that there would be tremendous problems on sort of the equity side and also selecting, just plain old selecting, which areas. Every council district has a couple of areas that might look attractive there. And once you start doing that -- and again, for residential development, it would be a good thing. We believe that the cost fundamentally would be too high on the wage tax.
Is inclusion of such a section compelled by the state law? I mean, do we have to have a section with respect to residents?
We do not have to. We are allowed to, but we do not have to. But we do have to put in that wage tax just as its corresponding state, personal income tax will be zeroed out for any resident domiciled. And we do have to include that language. We are allowed to include residential, but we don't have to.
Councilmember, would you permit me to interrupt you or just for a second on the residential zoning part of this 109 11/30/98 - WHOLE - BILL NO. 980788 thing?
I think this council is entitled to some legal advice on the extent to which the zoning board, the grant variances that might have a way of authorizing residential in areas that might be, for example, industrial so that, you know, we come in here and we say, oh, this is industrial, right, or this is commercial or some of the lower forms of zoning, you know, we look around and somebody is overlooking trying to get variances some place to do some things -- I mean, I want to know -- I think we are entitled to know, you know, what would have to happen, besides the general information that I requested, what would have to happen in order for residential to be available on any of the proposed sites, whether or not it would require an ordinance of council or some kind of variances so that -- we don't want to have to speculate on any of that. Do you understand? Because what we don't want to do is delegate a measure of authority so that those people now can do things 110 11/30/98 - WHOLE - BILL NO. 980788 that maybe the mayor or yourself don't intend and maybe this council doesn't intend. So if you could look at each one of the parcels and be able to say to us, in order for this parcel to be considered for any residential development, the following would have to occur, and then as to the sites of these various districts, there can't be any question, because we know if the law department says, right, then that's it. That's what we hear. The Chair thanks the Councilman for yielding, but I think that kind of information will be helpful as we pursue all of this.
My understanding, Mr. President, is that the ordnance and maybe the state law just defines a resident, and the zoning wouldn't matter. So that if anybody chose to live in an industrial property and no action was taken to remove that person, there is nothing that I know of legally that can stop anybody from having a domiciled or residence on any property. It may be that somebody would have to 111 11/30/98 - WHOLE - BILL NO. 980788 file a complaint and you have to start an L&I proceeding and maybe we get involved with the various zoning boards. But the law doesn't say the property of the domicile area or the resident has to be zoned residential. It just defines the person. And if a person lives in a warehouse building and establishes a residence there, he may be doing something illegal under City laws, but I think he would meet this test. But I think the President's suggestion for a legal opinion on that would be good, because the zoning board does have the power under current law to grant variances for people to live in a residence even though the property is zoned as something else, zoning board with the variances. So I will leave further questions on that until the legal issue. Let me ask a question on the business. Suppose you have a business, say retail business, toy stores that often have many locations, or pet shops, that kind of thing, or rug stores, anything. And suppose one comes into a given zone, what happens? To what extent is 112 11/30/98 - WHOLE - BILL NO. 980788 that business entitled to get the exemption for real estate tax and business taxes?
The owner of that property -- number one, if a retail business says I want that, that parcel and it has been identified as a KOZ, there would be two things going on: First, there would be other people looking to buy that property or lease that property, too. And we would bid -- and it would get bid up, either the rent or the price would get bid up. The second, the businessmen established there would not have to pay property taxes either through the rental to the owner, because the owner wouldn't have to pay, or the business bought the property itself, it would thought have to pay property taxes, it would not have to pay business privilege taxes, state business taxes, state corporate income tax, and it would not have to pay sales tax on its wholesale, the wholesale sales. It would have to charge sales taxes to customers coming in on a retail sales.
Would that not 113 11/30/98 - WHOLE - BILL NO. 980788 affect the taxes applicable to the other property?
Correct, to retail sales. If you and I walked into the store and bought something, we would still pay the 7 percent tax.
But I mean, all other taxes that the business pays, I don't know whether they file a separate tax form for each business or file one tax form covering all businesses.
If it's a chain, for example, and it has ten stores throughout the city and one is in the KOZ, they would be required to separated that out and show -- and not pay and show an exemption for the various taxes. By the way, not just for the city but also for the state.
So that the advantages for the business are fewer than to a resident in the zone?
Well, the resident, as far as getting taxed, will be exempt 114 11/30/98 - WHOLE - BILL NO. 980788 from taxes no matter where they worked. If they worked outside of the zone anywhere or at two or three jobs outside the zone, they would be exempt from all of the wage taxes --
But I think the analogous store, by nature of the fact that the business is doing its operations out of that site, it's property and basically income-type taxes would be exempted. And if you live there, your property and your own income-type taxes, regardless of where you earned your income, whether it be wage tax or state income tax. That's the analogous situation. You as an individual wouldn't have to pay that either at that particular site.
I notice in the description of the Delaware River, we have the Lower Delaware River, we have an Upper Delaware River and we have a Central Delaware River. So it seems to be that is everything along the Delaware River. Or are there other portions that are neither lower, upper or central?
No. Actually, that is pure geographic description to identify three 115 11/30/98 - WHOLE - BILL NO. 980788 separate subzones. The Lower Delaware River includes, as Bill Hankowsky mentioned, the Naval Base, the Girard Point, the privately owned Girard Point, the Naval Hospital, Piers 122 and 124 along -- down the old coal piers down the bottom of the Delaware before the curve and Pier 74 annex around Snyder Avenue, the one undeveloped poor parcel right now. The mid -- the Central Delaware Riverfront includes the non-used portions of the Riverside Industrial Park, which is the Old Cramp Shipyard and the Port Richmond Area that is currently not leased to operators. The Upper Delaware is up around the northern shipping site, the old Federal -- Federal Arsenal Annex, the 17 acres of the old Northern Metals Site, the Philadelphia Coke Site; in other words, up further -- essentially just below our prisons.
How are the Delaware River portions named that are in between?
They are not included. They are not included. Each one of these -- each 116 11/30/98 - WHOLE - BILL NO. 980788 one of these areas has specifically identified parcels in them. We just call it that to give the subzone a name.
Does the Lower Delaware River now include the Navy Yard?
They are still included even though they are crossed out?
What excludes it literally is that we've drawn the boundaries of the proposed KOZ to not include it.
Basically any of the operating businesses or established businesses we have taken out of the zones. And it is only the vacant and underutilized and dilapidated buildings that we have included.
So that the only way we would know that for sure, say if I were very skeptical and wanted to have proof, you would find me something which describes a parcel of land by its description --
Yeah. Well, there are a couple of things. One is, I believe, that about 118 11/30/98 - WHOLE - BILL NO. 980788 85 percent of the language here we have to write up because it is publicly owned parcels that don't have BRT numbers. And so in each one of those, we have to have a description describing which parts of the lands you are talking about. In the privately owned and some of the smaller public areas, there are actual BRT parcel numbers. And all we have to put in the legislation is that parcel number completely identifying that parcel.
Mr. President, may I suggest that the request for legal interpretation include the question of legality of picking up parcels in the city. I am just concerned. Suppose residents or businesses in a certain area believe they have been unfairly not included or for some other reason feel they are being treated unfairly. I would just like to know the state of law. Do we have the power to pick out these individual sites?
Councilman Cohen, while you were questioning the witness, it occurred to me to try figure out a way of getting 119 11/30/98 - WHOLE - BILL NO. 980788 some advice on the question. It is my understanding that the Uniformity Clause of the Pennsylvania State Constitution limits the kind of classifications we can establish that treat people differently but we know we can because we have a resident wage tax rate and a nonresident wage tax rate. So we know that there are some -- there is obviously some latitude that the State in conjunction with the City has. And I think what we need is some direction on what, if any -- how will this comply with the various legal restrictions that we have on us that prohibit our ability to treat one taxpayer in the way that is different from the way we treat another taxpayer. And we may not be asking all of the right questions in the right way. But what we want you to do is, where we have failed to properly frame the issue, we would like you provide to take the responsibility of looking at and framing before us, even if it has to be framed in a little of a different way. It does raise all of these kinds of questions. And I think it's only fair that 120 11/30/98 - WHOLE - BILL NO. 980788 councilmembers be asked to consider this in this way at this time, be given as much advice as we can either on questions that might be raised by others who have an interest in all of this. Is that fair enough, Councilman?
I think that's a fair requirement. I think we ought to have some confidence in our legal position. If some taxpayers -- and there are bound to be some who are going, well, right across the street from the zone, they ought to have been included, and it's unfair that they weren't included, why does this other fellow have a business advantage over them, that sort of thing. So I think we ought to have some clarity as much as there can be on this issue. One last question: Would you be able to make a flat-out statement that the bill does not permit any thriving or viable business, does not grant any thriving or viable business any benefits, but that the benefits are limited to businesses, I guess, that are not thriving? You know, is that true or is that not true?
That's what I was 121 11/30/98 - WHOLE - BILL NO. 980788 saying.
We have endeavored to eliminate all -- as many but not all. We're constantly finding that there is a little business in one of these buildings that we thought was completely vacant and we are checking. But the sum total is really insignificant. We have basically endeavored to exclude any existing businesses and parcels or buildings or areas where we know of something in the pipeline that is already going to -- that is already going to happen. And so we're trying not to -- basically trying not to then add something that we already know either from just plain old market forces or some of our other programs; we're already working with to keep those out. We don't want to -- again, we are very mindful of the view espoused here by council, Councilman Nutter and others, about what sort of taxes will be forgiven in the future and -- and I mean corollary to those, we are very 122 11/30/98 - WHOLE - BILL NO. 980788 mindful of trying to minimize the revenue, direct revenue impact of this zeroing out. Unlike TIFs and unlike abatements, it doesn't freeze where you are now. It literally takes whatever you earn, whatever you are paying now and now and makes it zero. So there is an immediate impact there and endeavor to minimize that. If you can think of -- one thing that I noted, it is about $1.6 million of total bills and taxes that are on now and probably 1.3 million out of our roughly $1.9 billion of tax collections on these 2,000 parcels, 2,000 acres out of roughly 100,000 acres where half of that is our stuff, publicly owned. But that is a small area of the city, but it is nonproductive. In most cases we were trying to find the places that are simply not productive, and we don't envision any real opportunity given what we have in our -- the area we have now or read of the local economy. We don't see anything is potentially going to happen. Would I say categorically that on one of these parcels something might not 123 11/30/98 - WHOLE - BILL NO. 980788 happen five years from now? Absolutely not; I couldn't say that at all. If there is something going on now, we basically have endeavored to exclude that. There might be some small businesses going on in some of these places. You know, literally, we go out in one month and there is something starting up or something not starting up, but for the most part there really aren't any existing businesses here.
Well, does the Amtrack Northeast Corridor, Glenwood Ave. essentially have areas where there is ongoing -- on the Old North Philadelphia Rail Station or Amtrack --
That is not included. But a lot of the dead industrial buildings and land surrounding that area will be included. And we hope that that will be something that will both spark not only -- not only have we had investment in that community there for the new 124 11/30/98 - WHOLE - BILL NO. 980788 shopping center and others, but also sparked in that area -- basically along the Amtrack Corridor and the spur, the Northwest Spur, that is that old industrial underbelly of the city that we are hoping this will spur some additional interest to lead to development.
Roughly from Front Street on the eastbound to about -- to about 29th Street on the Amtrack Corridor, and then right behind the North Philadelphia Station where the northwest is, in the 18th and Indiana area, around -- between Lehigh and Allegheny, in that area. There's a Y on the old -- on the old, the rail right-of-way where those industrial buildings are just shot. We all know them from driving around probably, so we've erased them from our minds. But hopefully these are the ones they will be able to either restore some of those 125 11/30/98 - WHOLE - BILL NO. 980788 or tear some of them down and, again, add to productive use.
And what factor is placed overall, whatever is the financial ability of the owner?
The financial ability of the owner in this particular case -- I mean, we are looking at land use as opposed to financial ability.
If it (unintelligible) land decided to okay in an area like one of these areas, there would be plenty of space, I would think, in several areas of the city, this bill would apply to them.
Well, I don't know about that particular case. But I do want to remind everyone here, just like abatements and TIFs, in a lot of cases, the fundamental rationale for being someplace still has to fundamentally be an economic purpose for someone locating someplace. If someone thinks I can go in here 126 11/30/98 - WHOLE - BILL NO. 980788 and just get something, and willy-nilly, if that is the only person on earth thinking that, then they will get a bargain. But as long as there are a couple of other people thinking that, too, then the prices will be bid up and the use will go to something that they can actually take advantage of. People are saying, are you going to end up having speculators on this? Anybody who speculates on this with the time-clock ticking every second of the day, where they are speculating and not doing anything, is losing financial advantage. So this may be one of those types of things that will actually spur some people to do investment or sell to the developer or to someone who would do the invest.
What about the real estate transfer tax during the course of this whole 12-year program?
That is not one of the taxes that is exempted under this KOZ program. And I just did a double-negative. In 127 11/30/98 - WHOLE - BILL NO. 980788 other words, we still retain the real estate transfer tax.
Thank you very much. The Chairman recognize Councilwoman Verna.
Thank you. Mr. Mullin, I heard Councilman Cohen questioning you about the Navy Yard Site. Other than the Byberry project, can you tell me how many new businesses we have at the Navy Yard now just off the top of your head.
Yeah. I want to say something between 30 and 40 new businesses.
So that's 30 or 40 businesses. Would they be excluded from this?
They are new to the 128 11/30/98 - WHOLE - BILL NO. 980788 community. I guess the sense is they made their business decision based on the -- based on the then current operations. And the one thing that I would note, that if there was a business, say, going to Parcel A -- and I don't want to sound like a broken record. But if they bought that Parcel A for at least for a certain price, and that is pre-KOZ, post-KOZ there would be more of a demand for that. So part of what their neighbors will be doing is paying more for the land that they are in. I mean, in theory, all that would completely equilibrate. The prices would go up to take it, to capitalize all of the advantages of the lower taxes. We don't anticipate that to happen, but we anticipate -- and the number was 100 percent. But we do anticipate some rising of the value of the prices. So one company that is in there now -- do you know what I mean on that particular case? What the company that is in there now would lease some space for less than what another company afterwards would be 129 11/30/98 - WHOLE - BILL NO. 980788 leasing. I would be paying lower rent, higher taxes; someone else would be paying higher rent but lower taxes.
I recall when we had the meeting in the mayor's office you said to be eligible you would need acres and now you 9 are talking about zones today. Does each zone 10 have 20 acres that the mayor testified to? 11
There is always 12 confusion. Because stateside there would be 12 13 zones, but each one of the zones can have 12 14 subzones. So lists of what you can -- and each 15 one of those subzones has to be at least 20 16 acres. 17 So you can add up the different 18 parcels that are in each one of the subzones. 19 And as I was describing to Councilman Cohen, the 20 Lower Delaware, the Middle Delaware, each one of those is a subzone that has at least 20 acres in it. And so -- and it could be in the American Street Corridor, there are a lot of small sites, the Byberry or the Naval Business 130 11/30/98 - WHOLE - BILL NO. 980788 Center, for example, we certainly -- I mean, one small section of that takes care of the acres 4 to begin with. 5 West Parkside is another one where 6 there are three separate parcels all adding up to 7 about 60 acres but we call that one subzone. 8
Mr. Mullin, does 9 New Jersey have a similar program, for example, 10 no taxes, or are there empowerment zones at 3 11 percent sales tax? 12
New Jersey has various 13 types of zones and empowerment and state 14 enterprise zones and stuff. To your knowledge,, 15 they don't have anything -- it's only Michigan 16 and Pennsylvania that have these very broadly 17 sweeping zero tax zones. 18 But New Jersey and other states and 19 other competitors, for example, Maryland and 20 Delaware, too, in this area, do have various types of -- if you are in this particular zone, you can get lower utility rates or sales tax exemptions and other things like that. They have these various packages, partly because of the uniformity restrictions 131 11/30/98 - WHOLE - BILL NO. 980788 here in Pennsylvania. We don't have the ability to sort of zero out different things like sort of one for one versus New Jersey or one for one versus Delaware. But, to my knowledge, no, it is only Michigan that has the program that is this extensive for these particular parcels.
Mr. Mullin, if Council were to approve legislation on the zones or the sites and nothing happens in a couple of years, two or three years, can we just repeal it take it all back and say we don't want to do it, it's not working, it's too late, or are we stuck for 12 years?
In that terminology, I think we're stuck for 12 years. The State does not allow for anyone taking particular parcels out afterwards or changing any of the tax -- in other words, we couldn't say for this -- after five years we are no longer going to do the property taxes in these particular...
No, I didn't ask that question. 132 11/30/98 - WHOLE - BILL NO. 980788
And you can't zero in on anything else and take it back out. Likewise, you can't add anything back in afterwards. So we are stuck for years. 6
I would like to 7 have that in writing, too, when we are ready to 8 give an opinion. 9 And once an opinion is established, 10 there can never be a way of ending it, any 11 parcel, until the end of the 12-year period. 12
Mr. President, on that, we have the power to send the zone --
It would seem to me that we have the power to amend zones. You are saying, we may not be able to rule anybody out or operate it on the basis of existing zones, but wouldn't we be able to follow up what was happening and change the zones?
To add or subtract, providing we don't to take away any rights from somebody who -- 133 11/30/98 - WHOLE - BILL NO. 980788
I think no, because it is also the State -- I mean, these zones are both City and State zones. And the only thing that keeps them in is the State legislation. I guess the State could potentially decide they wanted to do a KOZ update or something like that.
Then give us some guidance on what the circumstances under which new zones can be added or existing, previously identified zones could be withdrawn. And if it requires companion state legislation, fine. Can we correctly understand that there will be a specific number of these KOZ areas throughout the entire state?
That's what I thought. Now, are all of the KOZ zones stateside the same? Do they all authorize the elimination of all local taxes and all state taxes?
All local taxes, and in a lot of cases, they don't have a local version of an income tax. But the property taxes and the wholesale resale tax is exempted and the state 134 11/30/98 - WHOLE - BILL NO. 980788 taxes are exempted for everyone.
Now, when this legislation was being considered, did the City appear and testify?
We didn't testify. There was city legislators that did work. But we worked with DECD, the Department of Economic Community Development, when they were working up the mechanics of the both the legislation and the guidelines. And one of the things that we -- to give an example of something we weighed in fairly heavily was the notion to restrict the ability of firms just so to move willy-nilly across without adding -- without adding employment or adding new investment in plant and machinery. In other words, there has to be a hurdle besides having everybody sort of rearrange the deck chairs inside -- inside the state. We also -- I don't know the exact number, but during the course of the development of the official department guidelines in the application, we have virtually been in constant contact with the Department of Economic and 135 11/30/98 - WHOLE - BILL NO. 980788 Community Development as we have been talking about, what can we add in here, their lawyers, you know, how might this work in urban setting back and forth. And I think we've had some -- I would say that we've had some influence positive and I think everybody would consider -- positive influence on the development with of the product of the state.
But what do you regard as being the weakest and most troubling part of this program?
On behalf of the administration, I think the most troubling part on behalf of the administration, and it probably lines up personally, too, is the fact that in this you are talking about parcels, and so you are including some and excluding some others. And sort of at the margin, there is no hard and fast rule that says, this should -- 136 11/30/98 - WHOLE - BILL NO. 980788 everybody agrees this should absolutely be in, everybody agrees this should absolutely be out. I am sure that all of the councilmembers recall when we were talking about empowerment zones, we have two rules that really defined ultimately what we had to do. One, was it had to be a census tract; and two, we had a population cap. And so there were literally a finite number of ways that we could come up. If you set the computer program running and say, give us all of the census in the three subzones, give us all of the census tracks that fit all of this, there really weren't that many options. And if someone said, well, what the south side of Girard Avenue or what about east of American Street, or something like that, we would say, the line is the census tract. Here, it is hard to say, you know, where would this boundary end, and what should be included. And that's something that we tried to -- we tried to -- all of the comments that have been raised here today represent things that reflect issues and things we have been trying to address on this. 137 11/30/98 - WHOLE - BILL NO. 980788 I think the most troubling thing is there is just no perfect "yes, you're in" or "yes, there is a reason for you to be in" or no 5 perfect "there is a reason to be out."
Councilman, I would request permission to leave the chambers.
Thank you very much. Leave will be granted. The Chair recognizes Councilman Nutter.
Thank you very much. The Chair recognizes Councilman Nutter.
Thank you, Mr. President. Just to go back real quickly, Mr. 138 11/30/98 - WHOLE - BILL NO. 980788 Mullin, are there any estimates at this point on either the number of businesses you expect to attract to these subzone areas? What do we 5 know about these areas and any problems that 6 we've experienced in marketing them? 7 Who do you think, other than the 8 companies that -- you made reference to a 9 California high tech company, and two America 10 Street businesses who may want to expand. The 11 California company, I guess, would be a new 12 addition. I mean --
-- what have you been able to determine would be the ultimate effect of this? And you made the decision about these 12 areas that extend for 12 years? And then with the question I was asked earlier either by Council President or Councilman Cohen, I've lost track, that there's apparently no real flexibility. This is a rather long-term decision about 12 areas that you may or may not know a great deal about.
Well, I think in a lot of cases, I'm not sure I would say I don't know a 139 11/30/98 - WHOLE - BILL NO. 980788 great deal about some of these cases. But number one, we don't have a forecast saying 350 new businesses or 12,000 jobs or anything like that. We have been concentrating more -- quite frankly, we have been concentrating more in sort of trying to identify places where we would like to see whether or not this kick start would work. I fully believe that there are some areas that are included in here that even with this -- I shouldn't say "fully," but a very high probability that even this type of incentive won't be enough to, you know, turn the economics in such that certain parcels will be able to be developed.
Right now the price continues to drop and in many cases the market price is negative because of environmental hazards or whatever. Let's say parcel is worth $1 million but it has $5 million of environmental problems with it so it's market price is minus $4 million, and let's say the KOZ, that adds $2 million to it 140 11/30/98 - WHOLE - BILL NO. 980788 so it's minus $2 million, maybe, maybe we can then work on some other programs to help remediate for the smaller amount of the environmental impact cost there.
What would you be doing at all of these sites if the State hadn't come up with this idea?
For the publicly-owned sites, we would continue to market, we would try to continue to market them over time. Some of them might have businesses, some might not. A lot of the -- what I refer to as the industrial underbelly type buildings, I think, many of those in 12 years we would take a drive down and see a lot of those buildings crumbled a little bit more but still there, but some where we might over time be able to amass enough money to be able the demolish, et cetera. In other words, I don't see things as being -- if we didn't have this opportunity to basically apply some public subsidy in the redevelopment of land, we would have to use some of other programs, which I think in a lot of cases there simply wouldn't be enough money to 141 11/30/98 - WHOLE - BILL NO. 980788 redevelop.
My last question is: Your testimony makes reference again to the Michigan Renaissance Zones and that the Pennsylvania Plan and the KOZ is essentially based on that program; is that right?
When I say "essentially based," I think that was its inspiration. I don't know that it follows it point-by-point. But the fundamental issue, yes.
But in response to an earlier question I believe, actually, from me, you indicated that in the case of Michigan, their tax structure is fairly significantly different than the Pennsylvania tax structure but were providing for your program that is essentially based on some other state's system even though our tax structures are very different.
I wouldn't necessarily say based on some of the states. I think the basis is that there are certain parcels.
Yeah, the concept is 142 11/30/98 - WHOLE - BILL NO. 980788 there. There are certain parcels of land in either the State of Michigan or the State of Pennsylvania that the market place concept was deemed unworthy or whatever, unworthy in the sense there is no viable economic use; a lot of them being in the cities, they do nothing but drag the city down. And second, second, our economic developer, our direct subsidies, aren't sufficient to turn that gap.
All right. Thank you for the second opportunity, Mr. President.
Thank you very much. The Chair recognizes Councilman Kenney.
Thank you, Mr. Chairman. Mr. Mullin, are you aware of any other counties, for example, Delaware County or Bucks County that may be working on a similar program or application?
I believe Bucks County and Montgomery County are looking at doing a 143 11/30/98 - WHOLE - BILL NO. 980788 joint zone, five counties surrounding here doing joint zones, they can do the subzones. They 4 can do little pieces in each. 5
Intracounty, correct. 7 And the City of Chester is doing it's own inside 8 Delaware County not with -- not with Delaware 9 County. 10 And it's my understanding that there 11 was a -- no one knows how many are going to apply 12 until December 31st. But my understanding is that there are 17 possible applications that DECD is expecting for the 12 zones.
So in the five-county area, now I am going to hypothesize this, because you can't really answer the question, but it is my belief that considering the fact that this is a State-sponsored program in cooperation of not only the Government's office but in leadership of the House and Senate and considering the fact that the Speaker of the House is from Delaware County and the majority leader of the Senate is from Delaware County and some on the part of leadership on major 144 11/30/98 - WHOLE - BILL NO. 980788 committees throughout the legislature are from surrounding counties in Philadelphia, that there is a good possibility that that application might be approved?
I tend to agree with you. I will also note that the governor has pointed that this is -- this is one of the things he is looking at for distressed rural and urban areas. So that a responsible application on the part of the City of Philadelphia would have a very good chance of --
And it would also seem to me -- I am not suggesting to anyone here, suggesting we won't do it in Philadelphia, but if for some reason we wouldn't do it in Philadelphia, I think -- and maybe you guys could come up with some analysis. I think it would be cataclysmic of what would happen to the potentially existing business in the city with the lure not only of maybe better conditions in 145 11/30/98 - WHOLE - BILL NO. 980788 the suburbs but certainly no taxes in the suburbs. I think they would be running out the door faster than we could stop it.
I think brokers and leafletters for businesses in the City. If Philadelphia didn't have one and the surrounding areas did, especially in light manufacturing, assembly and distribution, that brokers and leafletters would have a field day running --
And to look forward, in order to keep the playing field level at all, if they do it in the surrounding counties, we are going to have to do it here.
Mr. Mullin, the president asked you a question earlier about the artful persuasion of different areas within the city that at times try to attract a business from one part of the city to another part of the city. And I think the president gave you an example. Councilman Kenny raises the question 146 11/30/98 - WHOLE - BILL NO. 980788 of the surrounding counties. And I assume they will all probably do that. Given the leadership that he mentions, they more than likely will have very good allocations. Is there any prohibition to this that prevents a surrounding county from attracting to a cause a Philadelphia-based business.
There is no prohibition except that inside the state if a Philadelphia company wanted to go to a Bucks County Subzone, for example, they would still have that hurdle of a certain amount of investment or an increase in the employment that is looked at from a statewide perspective.
So everyone is playing by the same rules. So the actual answer to my question is there is no prohibition?
By Bucks nor Chester nor Delaware County with a KOZ in place from attracting qualified Philadelphia businesses that can meet the requirements of the KOZ to relocate to a county around us?
Vice versa that we would actually get businesses from the surrounding counties that would move into Philadelphia.
I think that there is one response of Councilman Kenney, the question that requires some clarification. I thought the witness said that counties can have a joint application whereby a KOZ area can cross county lines.
So there can be Intercounty. 148 11/30/98 - WHOLE - BILL NO. 980788
Intercounty. I said "intra." And I should have called it "inter."
Well, intercounty. What we all have is intracounty KOZ?
Correct. But I do want to note that it doesn't have to be on the board, doesn't have to be on the board that each KOZ can have subzones. There can be a couple in Bucks 11 County, a couple in Montgomery. So they are 12 connected.
So we could say, for example, connect KOZ in North Philadelphia with the KOZ -- what is the advantage or disadvantage with that? I have no idea.
I think the disadvantage 149 11/30/98 - WHOLE - BILL NO. 980788 of that is the number of subzones we could have. I think that we could have up to 5,000 acres and up to different subzones, minimum acres. 5 And I think if we joined, we would 6 basically have to share some of those subzones or 7 share some of that acreage. And I think it was 8 established that -- at least for the subzones if 9 not the total acreage, we could probably fill 10 that inside the city, if we have to do it 11 outside. And the surrounding counties also felt 12 that the 12 subzones, they could also do that 13 within 5,000 acres. 14
So why did the 15 state law permit it? I don't understand, if they 16 didn't think they needed it? 17
Why did the state 20 law permit anybody to do it if the surrounding counties felt capable of identifying enough areas in order to not have to --
Oh, I'm sorry. I think I was talking about Philadelphia County only, that we figured we had enough to fill out the 12 150 11/30/98 - WHOLE - BILL NO. 980788 subzones ourselves. The other surrounding counties had to sort of think of two things: One is, do they have enough to fill up subzones each; and, 6 two, what are their odds of getting one? Would 7 their odds of getting awarded one be greater if 8 they were joined there. 9 I think that's one of the things 10 that -- from my discussions with my counterparts, 11 that was one of things they were looking at. 12
Again, we suspect Philadelphia and Pittsburgh will get one, perhaps Erie; the larger areas getting one. And then that 12 potential going down, each urban area getting one, I guess you feel their strategy was to kind of couple parts to make their chances greater of being awarded.
My final point, I guess, is -- why I started to ask this question -- is if we need to keep paces with what they are doing in the suburbs and they are going forward with this, in order for us to be on an equal playing field in this particular area, we 151 11/30/98 - WHOLE - BILL NO. 980788 need to do this.
Mr. President, could I add one thing that I forgot to add in my testimony? I would like to just read -- and I will just pass this out. I would like to read into the record one of the amendments that -- quite frankly, there was a parcel in Eastwick that we were looking at. One had a business on it and an adjoining parcel didn't. And as I mentioned to Councilman Cohen, we are trying to get the ones that don't have business. Inadvertently, we inverted the BRT number for the one that has the business on it. And if I have could just note that instead of that particular parcel, you'll want to use Parcel G-3, I will get that information. But I have it in writing here.
Thank you very much. The Chair recognizes Councilman DiCicco. 152 11/30/98 - WHOLE - BILL NO. 980788
My question actually was asked by Councilman Kenny. But I did have one other question, I guess. Isn't this very similar to a TIF, I mean, when you think about it? I mean, if we go through the exercise of collecting the taxes and basically giving it back to the developer over a period of time, and in this cases we are just forgiving the taxes, we don't bother collecting them. Simply put, it is very simple.
In the sense that there is a public subsidy, if you will, from reduced taxes, I think yes. I think where it differs is the TIF, remember, there is still a base amount of taxes that is still getting paid to the jurisdiction. We have been very carefully trying to make that as long as possible any --
Forgive me. But -- (unintelligible) -- it's very similar.
Yes. And I think the answer is yes there. And the other very important thing to note is that once you do this, there aren't necessarily specific projects that you are going to be looking at. The answer is 153 11/30/98 - WHOLE - BILL NO. 980788 yes.
I have a thought. Would the stadium fall within the boundaries? Could the stadium fall within the boundary of the KOZ?
Your question was whether or not we are really thinking about approving stadium legislation? I already asked that question.
Isn't there one major difference though? because I thought about that TIF business; one major difference: We have a developer who is sitting here saying this is what I am going to do, this is what it is going to be like, if you do this, we will do that. And in this case, we say, we will do this but we don't know what the "that" is, you know, for 12 years or whatever it is. I mean -- and I guess that's the one troubling thing about all of this, is what we do is, we confer with the 154 11/30/98 - WHOLE - BILL NO. 980788 owner of the property without having any certainty that something that we like will happen. Now, we can take some precautions to make sure that some things we don't want to happen don't happen. And it's my understanding that the administration is considering a zoning classification that would prohibited any residents. But we can structure this thing so that if anything happens, we are likely to benefit if anything happens, and nothing is happening now and nothing is likely to happen. But I think that's very much different than somebody saying, I will build this great big hotel or I will put this facility, which today we know is not happening and is not going to happen. That doesn't mean we shouldn't do it. But to me it is just a little bit different. Because we can't ask to calculate the real estate tax any of this is going to generate, because we couldn't probably know. You know, we could be going through this exercise and nothing 155 11/30/98 - WHOLE - BILL NO. 980788 happens. But then again, as has been pointed out over and over again, nothing for nothing is nothing.
And if something happens, at least we have something coming in.
And then there is the other point that Councilman Kenny makes, you know, if other --
-- other surrounding counties have this whole area out there that is literally a tax-free area, then that creates another kind of problem for us. Can you tell me how what we are considering today compares with some of the economic development support that the State of New Jersey gives? It has always been very difficult for us to match.
I do think for the particular zones that we are talking about, and that one example that I gave of the California firm that is actually looking at New Jersey as well and negotiating with the State development 156 11/30/98 - WHOLE - BILL NO. 980788 officials and New Jersey for our zones, I think this makes us pretty competitive with some of the New Jersey programs. Some of the New Jersey programs are statewide. So the effective rebate of income tax is paid and on other types of loans or rebate job creation tax credits that they get, are substantially more than Pennsylvania. But in some cases, their specific districts do have additional incentives. But I think overall, for our areas in the KOZ, it makes us very competitive with many areas in New Jersey.
Not wanting to belabor this, but something occurred to me as we were talking about the drawing of certain zones. Is there any way and -- has there been any consideration to utilizing some of the boundaries of the proposed KOZ, because some of them are in the general area of some of the suggested sites of either a new baseball or football stadium to utilize the KOZ boundaries to enhance the development potential of a particular 157 11/30/98 - WHOLE - BILL NO. 980788 area as it relates to athletic venues? For example, and I am not saying we are going to pick a site here today, but some of the locations that we have talked about, the Lower Delaware River KOZ or perhaps the Upper or Central Delaware River KOZ, Post Office, Market Street, West Philadelphia, some of those areas around in the general vicinity of where some of the sites and post sites of baseball and football stadiums have been chosen to visit, is there any strategy or analysis that makes sense to include those potential sites in the event that happens?
I think -- I note it is my understanding that when we looked at these particular areas, there was no thought of possible athletic facilities. One of the reasons why they coincide with the talk and discussions that people have talked about and proposed is that these are sites that are of X acreage and pretty much laying -- "fallow" is probably too kind of a word. Basically being very, very much underutilized or the potential to be the post office, with the post office potentially moving, and potentially 158 11/30/98 - WHOLE - BILL NO. 980788 being very underutilized and hard to redevelop. I don't think that there is anything that would restrict that, but with this legislation here, we are not looking at that -- we are not looking at including any area because of that.
Well, I am not suggesting that either or both or one be built in South Philadelphia. But you've KOZ'd the Naval Hospital; there is the existing Veteran Stadium Site that would potentially have to be demolished for a new football or baseball venue. The site that you discussed, which is currently a parking lot -- I don't know if you consider a parking lot as a going business or not, but it certainly is an underutilized portion of land. And I am not just restricting it to Philadelphia. There are sites all along the Delaware River up into Central and Lower Delaware. But the Upper Delaware, which are all train yards and things which would be perfect for a waterfront, Center City view baseball facility. For example, could we potentially look 159 11/30/98 - WHOLE - BILL NO. 980787 at that?
Does it enhance the location and make it economically plausible? Because one of things that I am concerned about is when we push this legislation to Harrisburg, where do we get our share? I mean, does our share potentially come from these kinds of things?
Yeah, when you say "we," could "we" as the administration, or could people look at --
Again, I don't think there is anything that restricts that from happening or to be a possible use here.
It certainly fits into the improvement of land, the creation of jobs and all of the other things seem to fit. And I would just ask the administration to kind of pursue this in some way before we pass it 160 11/30/98 - WHOLE - BILL NO. 980787 finally. And then there is some way to draw it in.
Thank you very much. Do any Members of Council have any questions for these witnesses? Thank you very much. Is there anyone in the audience who would like to testify on Bill No. 980788?
Mr. President, if I would risk stating the totally obvious, if the Committee is not going to vote on this today, may I request that the meeting be adjourned to a date certain and time to get this passed before the session ends?
Is there anyone present who wishes to testify on Bill 980788? 161 11/30/98 - WHOLE - BILL NO. 980787 Say no one. At this time, the Committee will consider Bill No. 980787, an ordinance amending Chapter 19-2500 of The Philadelphia Code entitled "Wage to Net Profits Tax," and Chapter 19-2800 of The Philadelphia Code entitled, "Pennsylvania Intergovernmental Cooperation Authority Tax" on wage and net profits through the exclusion of those taxes of net profits earned by a business trust that quantifies as a Regulated Investment Company or that confines its activities to the maintenance, administration and management of intangible investments and activities of Regulated Investment Companies. Good morning.
I guess that qualifies. Please identify yourself for the record.
Good afternoon, Council President Street and Members of City Council. My name is Nancy Kammerdiner, and I the Revenue Commissioner for the City of Philadelphia. 162 11/30/98 - WHOLE - BILL NO. 980787 I am here today to testify in support of Bill No. 980787. This Bill provides for an exclusion for the Net Profits Tax and the Pennsylvania Intergovernmental Cooperation Authority Tax on Wages and Net Profits, for business trusts that qualify as regulated investment under Internal Revenue Code Section 9 851. A Regulated Investment Company, RIC, is a unique class of business entity that is given special corporate status by the Internal Revenue Code as long as it meets certain strict requirements on its investments and distributions to shareholders. A change in the Commonwealth of Pennsylvania's treatment of RICs organized as business trusts has provided an incentive for these companies to reorganize. These businesses were originally established as corporations and, as you know, corporations are not subject to the Net Profits Tax. Without this legislation, then you would be subject to the Net Profits Tax when they changed their business structure. This would 163 11/30/98 - WHOLE - BILL NO. 980787 create an undue financial burden and limit their ability to compete. We believe that this legislation is revenue neutral. Your support of Bill No. 980787 would maintain the tax status quote for these companies and assist in retaining this type of industry in the city. I request that the rules of council be waived to allow this bill to be reported out of committee and have its first reading at the next council session. I would be happy to answer any questions. Incidentally, I neglected to introduce Frank Piava from the City Solicitor's Office who is here also to deal with any technical questions you might have regarding this ordinance.
Thank you very much. Have you had very much discussion with representatives of the industry about all of this?
We've had some 164 11/30/98 - WHOLE - BILL NO. 980787 discussion with Regulated Investment Companies that would be affected by this. And basically they are looking for the status quo to be maintained in terms of their tax structure.
Is any representative of that group or those industries present here today?
Well, can you tell us who you've talked to? I mean, I am sure -- you didn't wake up one morning and say: Oh, I think we need to do this amendment. Somebody asked for it.
Mutual funds are the typical or most usually identified Regulated Investment Company. And there are a few companies in Philadelphia that manage and maintain mutual funds. And they will be the ones directly affected should they choose to reorganize as a business trust.
Well, are you offering this as a result of any specific requests, or is this something you are doing on 165 11/30/98 - WHOLE - BILL NO. 980787 your own, just kind of anticipating what might be a problem in the future if somebody decides to reorganize?
The major example of the firms that would be affected would be Delaware Investments. They are the largest firm in this city that would meet the definition that we are talking about here.
Well, have there been any specific requests of any companies?
They have basically brought their concerns to our attention, and when we looked at the situation --
I believe there were some others as well. I am not personally familiar with the names of the companies. They came to the commerce department. So I am turning to see if Steve 166 11/30/98 - WHOLE - BILL NO. 980787 Mullin can help with that because I know he has met with more than one.
Yes. The primary -- the first company that came to us was Delaware Investments. Several of the other mutual fund operations in the city -- there are only a few left -- also noted this. With the change -- with the recent change in the State and the state legislation and business tax structure, all of these mutual funds are switching over to this business trust. They first -- they were the first ones to recognize that if that happens -- as Nancy mentioned here, if that happens, all of a sudden, they get tagged as something different than what they will continue doing as far as our tax code is concerned. And we had basically already done something like this in the real estate industry where you are talking about businesses that take in other people's money, work with it, but their gross receipts could be construed as the taking in of each people's money as opposed to what they earn off of it. 167 11/30/98 - WHOLE - BILL NO. 980787 And so it was really their noting it because it was only something that was relatively recent that people were changing, VanGuard, for example, just changed to a business trust to take advantage of that new change at the State level a couple of months ago.
And I think there is one other factor. We have been attempting to attract more businesses to the city. As Steve Mullin mentioned, there are very few of them here at the moment. That is because our tax structure has been such that it has been a disincentive for them to be in Philadelphia. As we attempt to attract more of them to come, we would have a double problem if we also imposed the Net Profits Tax on a company that would otherwise not have been facing that. So we are looking at both a prospective situation, recognizing a technical problem that developed after the State made their change -- and it was called to our attention by one that is still here but would consider it to leave, if they find themselves in an adverse position.
Why is this being 168 11/30/98 - WHOLE - BILL NO. 980787 done by ordinance and not by regulation?
I believe that is on the advice of the solicitor's office. Let me turn to Frank Piava for that.
Frank Piava, Divisional Deputy City Solicitor for the Tax Unit. The reason we have to do this through an ordinance is because what we are doing here is creating a special treatment for a unique class of taxpayers. And in order to meet the uniformity standards, it has to be something that is not done through regulatory interpretation, but rather has to be done through law, that's to recognize that yes, we have this special group of folks, Regulated Investment Companies, who we are going to allow to have a special tax treatment as opposed to other taxpayers that also pay the Net Profit Tax. And in this case, what has happened here is that the State has given up these 169 11/30/98 - WHOLE - BILL NO. 980787 Regulated Investment Companies, these mutual funds, a tax-free status under corporate net income tax if they convert into a business trust. And clearly, these institutions are going to convert to get that tax savings. But what they are going to have to do, if they go that way, and they are looking to Philadelphia, is move out of Philly, because their initial burden on the Net Profit Tax would more than offset the savings they get from the State. So really what happens here is basically they are forcing these folks to move out of Philadelphia in order for them to be competitive with the other mutual funds throughout the state, who would be reaping this benefit of converting to a business trust.
Why did the State do it? I was not around at the time that they did this, but it was my understanding that they wanted to be competitive with other jurisdictions throughout the country where these mutual events, 170 11/30/98 - WHOLE - BILL NO. 980787 which are growing in leaps and bounds, are not paying taxes in other jurisdictions. And in order for Pennsylvania to remain competitive, and we historically have had a lot of large mutual funds in our state, in order to maintain their presence and the large salaries that they paid their people, the State had to create this exemption at the state level. And they also had to do it through a statute as well. It wasn't through a regulation but through a statute. So it was just basically to remain competitive, and that's what we are forced to do here as well.
And we propose to mirror what the State did for the income tax.
What we propose is a parallel to what the State did for the Corporate Net Income Tax; the same language in terms of the eligible entities.
The Chair recognizes Councilman DiCicco. 171 11/30/98 - WHOLE - BILL NO. 980787
Thank you, Mr. President. I guess this is for any one of you but probably Mr. Piava. How many businesses are we speaking to? And do know have any idea as to the number of the employees that would be affected by this, if these companies were to leave?
We talked to three companies right now, the largest of which is Delaware Investment with approximately 900 employees in Center City, and the other two with 100 employees. We have also spoken with companies that are financial service companies that are outside of the city when we were talking about the possibility of their moving. And one of the things that they have noted is that if this sort of anomaly exists, it will be -- there will be very -- it will be too high of a hurdle. I would also note one other thing to add to the Ms. Kammerdiner's notes here, too, the State is actually changing around a tax that would -- that would reduce what they are getting. 172 11/30/98 - WHOLE - BILL NO. 980787 In our particular cases, as Nancy mentioned, this is something we are not collecting now. It would be, just by dint of their reclassification, lumped in another category, so they would still be paying what they are paying now and hopefully, actually, even more as their business expands and their employment expands.
Before you do this, it would be a windfall to the City?
I think it would be -- I think it would be a windfall to the City in the following sense: That we would not have any higher burden of attracting financial services businesses inside the city as compared to outside the city where the differential would be -- if we didn't do this, the differential would be Mt. Everest instead of Mt. Washington.
So in the short-term it would be a windfall but in the long term it is smooth?
In the long term -- no. 24 In the long-term, I would hope that they would find that there was even more attraction to 173 11/30/98 - WHOLE - BILL NO. 980787 looking in city among the other things we are doing, too.
If we did not have this measure enacted, we would impose the Net Profit Tax for these firms. But I don't think they would be here long enough for us to see the benefit of the Net Profit Tax.
That's what I said: In the short-term it would be a windfall --
-- but we would be collecting from them taxes that have to be collect, never intended to collect, but they would lead to one --
And I think they would leave so quickly that we would probably would never see the windfall that you referenced.
Is there anyone 174 11/30/98 - WHOLE - BILL NO. 980787 else? Councilman Cohen.
If they are reorganized as a business trust, they would be covered by the Net Profits Tax. A corporation is not covered by the Net Profits Tax, but a trust is. And the state legislation will give them an incentive to reorganize. They are currently organized as corporations, but because of the state legislation, these types of entities, these Regulated Investment Companies are reorganizing their structure as business trusts. A business trust would be covered by the Net Profits Tax.
Because it is not a corporation. And so basically what we are proposing here is that their tax status remain the same if they need the qualifications of the Internal Revenue Code, Section 851.
Which defines the 175 11/30/98 - WHOLE - BILL NO. 980787 Regulated Investment Company and the strictures that they have to meet in order to meet that test. There are certain requirements that they have to meet in terms of how they handle investments, the distribution to shareholders. It's a fairly rigorous test that not every investment corporation or investment company would meet. And only those that meet the IRS test would be eligible for --
When they meet the IRS test, what benefits do they get at the federal level?
At the federal level, it is a reporting requirement. The basis they give is, for example, a normal corporation, they get treated like a normal corporation, but they get the deduction for dividends that they distribute to their holders or shareholders. A regular corporation doesn't get any deductions for dividend payments, but a mutual fund does get dividend deductions for the distributions that they make, because of their 176 11/30/98 - WHOLE - BILL NO. 980787 special facts. And it is a very difficult statute to get into. And it restricts the type of investments you can purchase and also restricts or requires certain distributions be made every year to the mutual fundholders. And if they are not made, there is a penalty that is imposed, in effect. The penalty is so high that folks are basically forced -- the managers -- to make these dividends to these mutual fund shareholders.
This legislation won't help us get back some of the bank employees that have been moved outside of the city?
Well, I think this legislation will be helpful for us to keep that difference close. But whether we will get people to move back, I think this is one of several steps that shows the city cares about these businesses and wants to attract them. Is this the step that makes them all rush back in? I'm not sure. I think this is definitely a step in the right direction. But there are a lot of other costs involved in Philadelphia. Some 177 11/30/98 - WHOLE - BILL NO. 980787 businesses are willing to pay it, and some of them are not. I am not sure if VanGuard would leave King of Prussia and come down here.
Well, I notice the Mellon Bank advertises on the storefront on Market Street that it is apparently the owner of the Dreyfus Fund.
And the Dreyfus Fund, that is not located in Philadelphia today, is it?
It is exactly that type. In fact, and the commercial banks, as the financial services industry broadens as more entities provide more services, we would want to not have a big barrier to having that type of -- the regulated investment activity, which is a growing portion of the commercial banking and investment banking world. We would not want to have significant 178 11/30/98 - WHOLE - BILL NO. 980787 burden, that actually a significant hurdle as I mentioned, that comes about simply because the State changes a definition for an organization.
Well, let me just urge that if council passes this bill and it becomes law, that those banks would have tie-in with investment funds, like Mellon Bank, and maybe many other banks in the city that do that same, that they were notified of this change in the hope of bringing in -- you know, bringing back to the city a portion of the employees that have left.
Thank you very much. Does any other member of council have any questions of these witnesses on this bill? Thank you very much. Is there any other person in the chamber who wishes to speak on this bill? We are now referring to Bill No. 980787. At this time the Committee will consider Bill No. 980796, which is an ordinance 179 11/30/98 - WHOLE - BILL NO. 980796 amending Section 20-101 of The Philadelphia Code entitled "Residential Requirements," by providing that acting in the United States Military Service personnel entering into Civil Service positions in the police department need not be bona fide residents of the city when appointed, but must establish such a residence in the city within six months after appointment. Are there any administration witnesses here to testimony on Bill No. 980796? The Chair recognizes Councilman Kenney.
Thank you, Mr. President. It is my understanding that the police commissioner is being paged and will be here forthwith. But I think there is some other witnesses that have been listed.
There are other witnesses. Oh, I think I do have a list. Is Fred Voigt here? Fred Voigt? Will Gonzalez? Rick Southerland? Steven Preston?
Good afternoon, 180 11/30/98 - WHOLE - BILL NO. 980796 ladies and gentlemen --
Good afternoon, ladies and gentlemen. My name the Ricky Lynn Southerland.
Mr. Southerland, I am going to have to ask you to speak up and speak right directly into the microphone.
I am a military police officer in the United States Navy where I hold the rank of Petty Officer Third Class. I have been in the Navy for nine years. I am presently stationed in Lakehurst, New Jersey. I am 29 years old. I am married, three children. My wife, Shelly, of three years is a native of Philadelphia. My in-laws are still in Philadelphia. I would like to read to you the letter I sent to Mayor Rendell expressing the problem I had in facing trying to become a 181 11/30/98 - WHOLE - BILL NO. 980796 Philadelphia police officer since I passed the entrance exam. "Dear Mayor Rendell, I recently applied for the position as a Philadelphia police officer, but they said to me that I did not meet the residence requirement. What I didn't understand and what frustrated me was I used to live in Philadelphia on 2123 East Washington Lane when I was stationed at Philadelphia Naval Yard for two years. "I have been in the Navy nine years now, my last three and a half years as a police officer. "I am scheduling and planning on getting out of the Navy in January, and I could get into the police class in February. Now, I can't because of the so-called residency policy. "My question is: How can I establish residency when I can't even establish employment? I have served nine loyal years for my country, never sold or taken drugs in any form or fashion, don't drink, smoke, in excellent health, I'm honest, and a family man, and still I can't get a job with the Philadelphia Police 182 11/30/98 - WHOLE - BILL NO. 980796 Department. "Thank you for your time, and I hope you will support this bill, because it will make it possible for me and my family to move back to Philadelphia. Please give me and my fellow servicemen a chance to serve the City. We will not disappointment you. "Signed, Ricky L. Southerland, U.S. Navy."
Thank you very much. The Chair recognizes Councilman Nutter.
I'm sorry, Mr. President. My light is actually on from earlier. I may have some questions, but not for this gentleman.
Thank you, Mr. President. I'm sorry, if I have missed the beginning of your statement. Where do you live now? Or your family, I should say; where do they live now? 183 11/30/98 - WHOLE - BILL NO. 980796
I am stationed in Lakehurst, New Jersey, but my in-laws are in Philadelphia.
But your wife and family, they are stationed with you in Lakehurst?
Were you a resident of Philadelphia at the time you went into the military service?
I mean, how long were you in North Carolina as a resident before you went into the military service.
He was born in 184 11/30/98 - WHOLE - BILL NO. 980796 Philadelphia.
Born in North Carolina. When did you come to Philadelphia?
Between '94 and '96 when I was stationed in Philadelphia in the Naval Yard.
You had the right, as I understand it, to acquire Philadelphia as a residence. I have difficulty understanding why the --
What is that? Well, once you establish a residence, you are entitled to maintain that residence for as long as you are in the service. That is my difficulty on this case. I don't know why they have any problem with residence.
Because I didn't 185 11/30/98 - WHOLE - BILL NO. 980796 have a Philadelphia driver's license. I kept my North Carolina driver's license and kept it valid because I don't change licenses with every station I go to. Because I have been in nine different duty stations, so I just kept a valid license and kept valid insurance everywhere I go. And I never was so called a resident of Philadelphia. I was living there. I thought -- I was under the impression that I would have to at least live there and have credentials in my name before I could even go on with police test and the Philadelphia driver's license.
Well, the interpretation of "residency" is quite different than the interpretation of "domicile." And I just have a very difficult time with -- and if there are any appeal rights, I think you ought to raise them because I think you're eligible. And having lived in Philadelphia, you meet the conditions I am concerned, about of bringing in military people who may have never lived in the city, who may not even know about the city. But you have lived here, so I think 186 11/30/98 - WHOLE - BILL NO. 980796 you would make a very fine police officer. Thank you, Mr. President.
Thank you, Mr. Chairman. Your rank in the service, your rank is?
Petty Officer, can you tell me some of the training you have been through in the Navy in order to be a military police officer, some of the different styles of training? And I will tell you what, we have had suggestions in the course of this discussion on this bill that somehow military training from police work isn't sufficient. We've had change, I guess, from when we're -- when we are actively involved in a war, say World War II or Vietnam or 187 11/30/98 - WHOLE - BILL NO. 980796 Korea, as opposed to what the modern military has become. And we need to talk about some of the training you have gone through that you think that is simular to being a civic police officer.
Well, I have been through the Law Enforcement Academy in San Antonio, Texas, a military police academy. And that's -- I have been to street survival school, and direct comp condition school, qualified patrol. And we go to the range like every other quarter to keep our calls up.
Is there any other type of either forensic training or legal training that you have encountered in the course of your studies in training as a police officer that has enhanced your ability to perform your duties as a military police officer?
Could you maybe, in addition to explaining the exact schools you attended, maybe talk about some of the studies in those schools that you have experienced? In 188 11/30/98 - WHOLE - BILL NO. 980796 addition to the firing range and other things, have you been through any type of training that would help you become a better police officer and explain the details some of what they are? Because when you said "direct comp," we as civilians really don't know what direct comp is.
Well, like different types of take-downs, a lot of self-defense maneuvers. And riot control; that's a big one we practice. And nuclear war, like as far as gas. And certified PR24, which they call the nightstick. And handcuff procedures; searches. And report writing, report writing, something that will hold up in court.
Have you been specifically trained both, either your military police training or from your general military training, in the written word, in writing skills and verbal skills?
Well, it is a little of both. A little bit the school. And then by me being in Lakehurst as a police officer for the last three and a half years, I have had 189 11/30/98 - WHOLE - BILL NO. 980796 experience doing it personally, these types of things. (Councilwoman Verna assumes the Chair.)
Madam Chair, that will conclude my questions with the exception that I truly hope you have an opportunity to bring you and your family here to Philadelphia to become residents of Philadelphia and a member of our police department. You're exactly the type of person we were trying to attract. Thank you, Madam Chair.
Thank you. Are there any other questions or comments from -- Councilwoman Blackwell.
Thank you, Madam Chair. Certainly I agree with the statements of my colleagues, and I am sure that this gentleman will be a fine officer. Is there anyone who can respond to the questions raised by Councilman Cohen, who stated that he did live in Philadelphia and, therefore, he might be eligible? Is there anybody here who can respond 190 11/30/98 - WHOLE - BILL NO. 980796 to the issues with regard to this gentleman? Thank you, Madam Chair.
Thank you. Any other questions of this witness? Thank you very much, sir.
Good afternoon. Kindly identify yourself for the record before you testify.
I am Fred Voigt. I am the executive director of the Committee of Seventy. I recently completed an examination of the governments, of the police department and looked back across time, back to actually when the department was first created. Interestingly enough, in the 1850s, Philadelphia as we know it didn't exist; it existed in a different fashion. You could commit a crime here, which was Philadelphia, and flee to Germantown, and there was no police force that had jurisdiction over the totality of Philadelphia County. 191 11/30/98 - WHOLE - BILL NO. " Today, if you have seen that movie, there are two jurisdictions in this county that have a similar control mechanism, and that is Los Angeles and Philadelphia. Both are reacting to absolute corruption and absolute abuse. So we took it to an extreme. The flexibility necessary to run that department is simply not there. We're talking more about management. We've heard the commissioner talk about thinking about crime, being proactive about crime, not waiting until the crime is being committed and reacting to that, which is the measurement that we had for years and years and years: How fast can we respond to 911 rather than how can we catch the bad guys before they do bad things? Now, we have also lost lots and lots of people. People have left Philadelphia in large numbers. 4 million, and you may recall that we had projections that 15 years ago we would be at 192 11/30/98 - WHOLE - BILL NO. 5. Instead, since 1990, we've lost over 130,000 people. So with a declining population, you have a declining pool. When you have a boom in the economy as we do, fewer and fewer people are interested in public service at any level, yet alone as a policeman. Your talent pool is limited. And the other thing that we found is this is just one issue. It's important to note that there are a lot of different pieces to this puzzle that have not been actively pursued and that everybody we talked to felt this should be pursued; that is active recruitment. For example, we were up doing an interview at Temple. And I happened to see these booths that -- it was an employment fair they were having. And here were the Connecticut State Police recruiting at Temple. And I said, gee, you know, I asked some people: Do you ever recall that kind of outreach on the part of the Philadelphia Police Department? And the answer was no. 25 And if you think about that for a 193 11/30/98 - WHOLE - BILL NO. 980796 minute. If we are talking about actually going out -- because we never had to do this before -- actually going out and recruiting, where would you go? Well, what do you want? You want educated officers; you want mature officers; you want to be able to train them. And this is the kind of pool of talent that is simultaneous with some of these changes, some other changes, like the one in the bill. There is no silver bullet. You have to be proactive in attempting to go out to find the best people. And then what you have to do, among other things -- and this is not a matter relating to the bill -- you have to change the matrix; that is, how it is they get hired. You have to examine -- gee, nobody else uses those kinds of tests, why are we doing that? Why would they eliminate that part of the test or reserve it for those particular circumstances where, you know, it is an appropriate thing. For the most part, nobody gives a damn. So why are we? We have to look to the experience of 194 11/30/98 - WHOLE - BILL NO. 980796 other departments and see what there and match it up as against what works here. Every city is different. Every city has a different environment. And no city is like New York. New York is absolutely unique by size, by diversity, by every measure. But there are commonalities. Now, the restriction that we are talking about here, only Boston has such a restriction. There is no other city where you are confined to find your employees within the city itself.
Most of them require that you do live in the city once you become an employee. Now, we're focusing on this bill 16 which provides not an open-ended piece but these folks in the military. There are reasons for that: one, again, judgement, maturity, training. And I demonstrated amendability to the profession. It is very interesting. I've talked to police officers. I talked to a lot of them. they don't talk about money. They talk about hey, this is really interesting work; I am in the job because I want to be in the job; and I want 195 11/30/98 - WHOLE - BILL NO. 980796 my colleagues who are on the job to be as competent as I can be or make me more competent than them. And that goes back to training, education and discipline. You know, that's -- if you think about it, all of that leads to the military or policemen. Unfortunately, one of my board members had to go to Washington or he would be here testifying. And he was a commander to the military district of San Francisco. He is now an accountant. But that's where he started out. And someone with that kind of perspective to describe the nature of the job and transferability of the information... I would be happy to answer any questions you might have.
Thank you, Madam Chair. Mr. Voigt, do you think this is appropriate to make this available to active-duty personnel. Why not just open it up? Because you 196 11/30/98 - WHOLE - BILL NO. 980796 gave us an example of other cities. Do they limit it to just active duty military personnel? I know some active duty military personnel that worked in the kitchen. I don't know how that makes them qualified to be police officers.
Well, again we are looking -- the focus, as I understood it, is primarily on the military, and by that you can even narrow it to the MPs; there is actual police training. You know, you can choose to look to a lot of things. But having that tool -- again, I emphasize, it is a tool. It is not a cure; it is just a tool. If the department doesn't do recruiting in a meaningful fashion, not only on the outside, the sooner you pass that bill, but inside, if you know, people are going to come take the test, you know, because -- it's an upward mobile thing. And if they don't do the training and the recruitment, nothing is going to work.
I heard what you said about this available pool. I am not 197 11/30/98 - WHOLE - BILL NO. 980796 concerned -- I am not convinced that we have done enough to identify why 2300 applicants, when at one time we had 10,000 -- I run into young men and women every day that tell me they've applied to be Philadelphia police officers and for one reason or another are not very high on the list. And I've also talked to police officers that work in communities outside of Philadelphia that would like to come to Philadelphia to be police officers. So would you have any problem with us expanding that to police officers that work in other jurisdictions or other cities?
No, I certainly wouldn't. If you expand it as broadly as possible, ideally you would get the best from wherever they are and bring them in. And that adds to your base and your population. We've lost 135,000 people since 1990. So your pool is diminished. You have a booming economy, so there are lots of other jobs -- other choices people can make. The same thing that is happening in the military: You know, people aren't signing up, they are signing 198 11/30/98 - WHOLE - BILL NO. 980796 out. But, again, it is not just this type of broadly expanded or narrowly expanded. If the commitment to recruitment and the commitment to change the matrix for hiring isn't forthcoming from the administration over a long span of time -- not just during the lifetime of this administration, not just during the tenure of this commission. You know, changing actions takes a long time coming when you are trying to turn a ship, and that's what this is about.
From your experience and the Committee of Seventy, do you believe the Philadelphia Police Department, Central Personnel does a good job in trying to recruit police officers? Again, if you saw the Connecticut State Police at Temple University, did you ever see the Philadelphia Police trying to lure residents of the City of Philadelphia that attend Temple University to become Philadelphia police officers?
Not at Penn, not at St. 199 11/30/98 - WHOLE - BILL NO. 980796 Joe's, nowhere.
Well, again, I think we are putting the cart before the horse here. It doesn't appear that we are doing a good enough job in recruiting Philadelphians that want to be police officers before we go outside.
Councilman, it is just one bullet. Okay? It is not a silver bullet; it's a tool. And if it isn't used appropriately -- if you don't use the broad array of things we talked about, if you don't go to Temple, if you just rely upon, you know, who signs up -- I am not saying there aren't any great people who remain in Philadelphia who wouldn't make great cops. Nobody is saying that. What I am saying is that you have to fish more broadly because of the deployment of the population. The days when your father led the department and people signed up 10,000, 12,000 at a time are gone. Those days will never return. So what we need to do is have a bigger pool of applicants. We want to do that by doing what I 200 11/30/98 - WHOLE - BILL NO. 980796 suggest with regard to -- not what I suggest, what people constantly told us: go elsewhere; put some life into that thing; go find these people, they are good people. But let's have -- all this does is provide you with one additional piece that can be very useful.
Before we start fishing broadly and throw the net out, I think we really need to analyze the problem we have. And I don't think it has been adequately analyzed. Before we start going outside, I think I would like to give every young man and young women an opportunity to be a Philadelphia police officer. And I would need to be assured that we are doing a good job in looking for those candidates. And at this point, I don't think we are doing enough to recruit our men and women here in Philadelphia. Thank you, Mr. Voigt. Thank you, Madam Chair.
Thank you, Madam 201 11/30/98 - WHOLE - BILL NO. 980796 Chair. Just one comment on your testimony, Mr. Voigt. And I thank you for giving it. You listed some items or some characteristics that you find you believe in the military can be found as far as education, maturity, training and other things. The other thing that is not discussed and hasn't been discussed to date is, we don't know -- we have a draft. And the people who serve in the military do it voluntarily. There is a certain work ethic and dedication to service of others that is exemplified in the petty officer there and other people who serve in the military. They are here to serve the country and to serve others in that capacity. I don't necessarily think -- I don't necessarily know if I want every person in the city who doesn't have the same dedication of service to others to be sought out as police officers first. I think there is a certain level of commitment and dedication and selflessness that is displayed on the part of the military 202 11/30/98 - WHOLE - BILL NO. 980796 personnel serving our country and the part of the many, many, many good and honest and decent police officers. It certainly isn't being done for the money on the police force of Philadelphia, because they are not paid enough, and in the military because they are not paid enough. So there is a certain selflessness and dedication to others, which is I am trying to seek out, and what we should all seek out in trying to find the best capable and best available police officers. The other thing I would say is that during the '70s, I guess late '60s and early '70s, many, many, many of our police officers who are serving here today in the City of Philadelphia, that are fine, decent, honest police officers who were serving their country in Vietnam during the Vietnam era. And that's where many of our officers came from during the '70s when councilmembers Rizzo's father was here in Philadelphia both as police commissioner and as mayor. So the large bulk of people we were bringing in here had 203 11/30/98 - WHOLE - BILL NO. 980796 military service. They had served their country in Vietnam honestly or served in theaters outside of Vietnam during the Vietnam era. So what I am looking for is not only capability and intelligence and maturity, but I am looking for a selfless, committed person who is committed to serving others. And I think that's what we need to do. And I don't want to eliminate applications from the people in the City of Philadelphia. I think we should go out and recruit and do what he can to find the people in the city. But if I can find decent, committed, selfless people in this that are serving their military and have the added benefit of bringing in their families into this city to become new residents, new taxpayers and new contributors, I don't see where there is a loss; it is a win-win for everybody.
I have to agree with you, Councilman, but I have add to that. It is like a broken record. This is only a piece of the puzzle. And if you don't have the other pieces and you don't have the commitment to make those 204 11/30/98 - WHOLE - BILL NO. 980796 pieces work, it doesn't matter, because it won't happen. It will just sit there and you will have a record and you may even have a bill, but it ain't going to happen unless -- and I use the vernacular because that's really what it's about. It's not going to happen unless there is a commitment, a long-term commitment, to doing a number of different things including getting rid of the polygraph. All right?
I am so glad you mentioned that. What did you decide --
Well, I just want to -- can I just make one final statement? I don't think the qualifications for being a police officer in this city should be limited to the need of a job. The simple fact of having someone need a job does not qualify them to be a Philadelphia police officer, male, female, black, white, Hispanic or Asian. There is a certain element of dedication and selflessness that is needed to put your life on the line and do it every day. And I think that simply being unemployed is not one of 205 11/30/98 - WHOLE - BILL NO. 980796 those qualifications. Thank you, Madam Chair.
Mr. Voigt, you said something about the polygraph test. Would you mind repeating that, please?
Sure. There is a matrix that is used, employment matrix -- I know you will hear testimony about it -- and that is who qualifies. And part of that qualification process is the use of a polygraph. Now, the polygraph is not used in any other city in the United States for that purpose. None. Zero.
None. It is very expensive. Of course, polygraphs aren't admissible in the court of law, but they can give you all sorts of problems. And I am sure you will hear testimony from individuals who took it again and again and again; some finally pass and some didn't. But there is a matrix that has to be examined that is something internal to the department. It is the criteria that they employ for applicants, and that is just another piece of 206 11/30/98 - WHOLE - BILL NO. 980796 this. There are lots and lots of pieces, lots and lots of impediments that by way of example, if this commission were in New York City, every member of his community would serve at his pleasure. He could either remove anybody or go back to the rank of captain. They are Civil Service protected to the rank of Captain. He can do that there. In terms of -- not that New York doesn't have enormous problems, it does. Anybody will admit. But in terms of being on the forefront of instituting change, that's where, in fact, they had been. There are other jurisdictions, San Jose, California, lots of places around the country that are doing different things. You know, some people call it neighborhood policing, but the proactive element is really what is revealing across the country. And we are far behind that curve, in part, because we were reactive rather than proactive. And that's when we had lots and lots of police officers who could afford to be reactive. 207 11/30/98 - WHOLE - BILL NO. 980796 We don't have that luxury anymore.
Well, I am glad you mentioned the polygraph, because I have heard from some of my constituents who have taken the written phase of the examination and perhaps got 100 or more in the written phase of the examination, they passed the background investigation and also the psychological portion of the examination, and they all seem to flunk on the polygraph. In fact, I am sure that you read in the paper perhaps last week or the week before about this one young man who apparently took the polygraph test four or five times and flunked each time for the police department; however, he took a test for the FBI, I believe it was, and was accepted by the FBI. Now, that puzzles me. That absolutely puzzles me.
I would like to hear a coherent answer to the question of why we do this. I have talked to a lot of people, and I have yet to hear an adequate, scientific justification for why the matrix is as it is. I would invite you and urge you to 208 11/30/98 - WHOLE - BILL NO. 980796 ask every witness who comes up to testify, to focus their testimony on that aspect. There is a totality of the hiring process. And this is -- the bill before you is just a piece. But I would urge you to go beyond that and ask every one of those witnesses what do they think about the polygraph, what is the utility of the polygraph, what about the matrix? It is not simply about recruiting. Recruiting is just a piece of it. And we certainly have to address that. And that includes with or without this bill passing. It is absolutely essential that that be done. But the next piece of it is, okay, how do you hire people that have the dedication and all of the things that Councilman Kenny talked about?
Thank you, Madam Chair. Incidentally, over many years, including years in which I was involved in the practice of law, the item just referred to by the 209 11/30/98 - WHOLE - BILL NO. 980796 Chair and people passing everything expect the polygraph test has been one of the biggest obstacles I have ever seen toward getting people who seem on all of the bases to be ideal police officers. I saw, also, in the last week that Police Commissioner Timoney is considering eliminating the polygraph test. It was the first common sense and sensible approach I have heard to the polygraph test as it is administered in the police department, because it just seems to me that that has been used, intentionally or otherwise, as an instrument to not hire people that are qualified to serve. So I would be very concerned about what we have done with respect to recruiting Philadelphians. I don't think there has been any case made for the fact that there was not enough qualified applicants in the City of Philadelphia. I also posed to you, and I haven't heard in anything you said or Councilman Kenney or Councilman Rizzo and I don't mean to be critical, but I just didn't hear anybody indicate 210 11/30/98 - WHOLE - BILL NO. 980796 that living in the city and having experience as a resident of the city was important to be in effective police officer. Yet I think studies show that the best police officers are police officers who are familiar with urban life. The best police officers for an urban environment -- that's the only environment I am talking about is the Philadelphia environment. I would like your thoughts. Is that a factor that ought to be considered?
Yeah. It is a major factor of employment. We are -- again, other cities do it differently. New York City requires that you don't live in the city but that you live in an adjacent county. I don't think from what I've heard and read and studied that that's going to work for us, that Philadelphia residency requirement. In fact, of all of the people we talked to, no 22 one said that was a bad idea, the residency requirement. The question related to pre- employment residency and why that requirement 211 11/30/98 - WHOLE - BILL NO. 980796 hindered the ability to go out and recruit. We're like a big company; think of us like a company. Our department has to go and compete. And we are competing for people all of the time. And then the particular skills necessary to be a policeman are different than a lot of other skills. It is a different concept. The mentality, that is different; it is a job-related kind of thing. And that requires having the broadest possible pool.
Well, before we move in a different direction. Will you have to have evidence that there was a real effort to make the current system work, that there have been efforts to recruit sufficient numbers of police officers from Philadelphia and it has failed? Because right now we have enormous unemployment in the City of Philadelphia, and it seems to me that we cannot only get very excellent police officers out from among the ranges of Philadelphians who live here, but we can also deal with the very severe employment problem that exists. 212 11/30/98 - WHOLE - BILL NO. 980796
I think it is very dangerous to view the police department as an employment agency. I think that is very, very dangerous, to put it mildly. What I think we have to do is a variety of different things at the same time. This is not a sequential process. This is a process to overcome inertia which built up over literally decades. Decades because they didn't have to go out. The recruits came to them in large numbers; not small numbers, large numbers. So what you did -- what happens, particularly when you are in a fiscal crisis, which we were -- some people forget that -- pieces atrophy. You don't put -- you put your money, you allocate your money, you allocate your resources based on squeaky wheels. Well, there was no squeak for years and years and years, so there was no -- there are no wheels. I think the new commissioner is committed to changing that. And I think there is a unanimity of view from in the department on -- not many subjects, but certainly on this one -- that they went the best there is. 213 11/30/98 - WHOLE - BILL NO. 980796 And they want the best there is because essentially they want the best watching their backs. They don't want somebody who is there because they want employment and they needed a job and really that is all they are there for. There has to be that commitment to watching my back. And the answer is: There are great people living in Philadelphia; there are qualified people living in Philadelphia. There are qualified kids at Penn who might be interested in becoming a cop. This sounds crazy, but there is a mentality involved in terms of -- hey, there is a mentality involved about hey, there is something appealing about that job that attracts people not simply on the basis of money. I don't think you would find any officer who would like to take less than he is making, or wouldn't like to make as much as some suburban departments, but the characteristic that you find in all ranks is that they love the job. There is a culture to it. Now, what we have neglected as a city and as -- and this isn't just one 214 11/30/98 - WHOLE - BILL NO. 980796 administration. This goes back a long time. The inertia that comes to a department like the police department -- remember, we have had three commissioners from out of town: We've had this one; we've had Kevin Tucker; and we've had General Smedley Butler (ph) in the 1920s, and he was a serving Marine general. Those are the only three. And if you recall -- you may not recall but Max Senate. Okay? -- the Keystone Cops, the film "Max Senate," did, he went and put it on us in the early part of the century. But each of those commissioners from outside did some changes. Smedley Butler wanted to put a top light on the stop of City Hall. There weren't any street lights down on Broad Street, so there would be one light, a big huge light. He lasted as long as a raid that he made, a probationary raid on the Union League, and the next week he was in Guatemala. You know Kevin Tucker for a year half made a lot of changes. But, again, it takes a long time when you are talking about 215 11/30/98 - WHOLE - BILL NO. 980796 institutional change. And part of what I am suggesting, at least, as for as these steps are concerned, it is not an derogation of searching in Philadelphia, certainly not. Because that is probably the most important, because that is where we are going to find the biggest pool, if we go, search out the pool. If you go out to -- you can't go to Villanova, but we can go to St. Joe's. We can go to every institution of higher learning in the city, to every college.
Mr. Voigt, I have trouble. We're all in agreement. I agree fully with Councilman Kenney that we have an outstanding police force. They came from Philadelphians. Why would we want to change a system that has produced an outstanding police force?
Because we also lost, at the same time. The pool is far smaller than it ever has been. The people who are applying for the job, people who are interested in the job and the people who are available here -- we've lost, again, an enormous number of residents from the 216 11/30/98 - WHOLE - BILL NO. 980796 city. And you can see the numbers. Who is applying to take the test? Now, I had also suggested to you that it is the test itself which is a problem, that is the matrix that they are using. But I am simply saying here, it is not in derogation of Philadelphians -- I am a Philadelphian; I am proud to be a Philadelphian -- but rather in terms of giving a better pool. Give me a pool which is competitive, where I can maybe save some money as a city by buying people -- by hiring people who are already pre-trained and pre-screened. And that's a function that the military does very well. We may have forgotten that Wilson Goode was an MP. That is neither to condemn or to bless the system, but he was.
And mayor of the City Philadelphia. 217 11/30/98 - WHOLE - BILL NO. 980796
And he ate Corn Flakes for breakfast, but what is the relevance?
I still believe as with everything else, when something is not broke, don't fix it. The place I go to look is the outreach effort of the police department or of the City of Philadelphia. Because in the last two years, there has been no sudden great loss of people from the City of Philadelphia. It has been a gradual draining away. We all admit that it is an excellent police force. I just fail to understand the urgency to go out and maybe recruit people who have no experience in living in cities. To me it seems to be a very important factor, and I don't understand why speakers don't refer to it, that the experience of living in the city is a very important factor -- not the only factor -- but a very important factor, in developing a suitable police officer for the City of Philadelphia. And I think that factor should weigh very heavily in the choice. And I think it does on the current requirement. And I think that's 218 11/30/98 - WHOLE - BILL NO. 980796 why we have such an outstanding police force. Thank you, Madam Chair.
You're welcome. The Chair recognizes Councilman Nutter.
Thank you, Madam Chair. Mr. Voigt, is it correct that the Committee of Seventy produced a report recently on the Philadelphia Police Department called The Governance Study?
Is it also correct that the Committee of Seventy on this particular issue made some recommendations regarding pre-employment residency issues?
And my understanding of the recommendation actually was that -- and I am quoting from the report on 9: "Such proposals have normally centered on allowing recruitment at military bases, universities (especially those with a historically high minority enrollment) or other law enforcement agencies." Is that accurate? 219 11/30/98 - WHOLE - BILL NO. 980796
But your testimony today is only with regard to the military bases?
In an ideal world, I would broaden the recruitment. I would include universities. Why can't we do St. Joe's and not Villanova? There are lots of different places, but if I'm --
We are not precluded from going to St. Joe's, Penn, Temple, 220 11/30/98 - WHOLE - BILL NO. 980796 Drexel or any other place in the City of Philadelphia.
No, no, no. I didn't say. My earlier testimony for criticizing department was for not doing it now. As I suggest --
Well, they're people who do it. They are the people who are charged with doing it.
I asked for your view; you conducted the study, you and others. Why don't we recruit from those places now? This is a very simple question.
And the answer is: There has not been a need or commitment of funds necessary to make that function happen.
In prior years, we had so many people who applied that you were inundated with applicants. And as a consequence, you need to go out and find people and encourage people to apply who wasn't there. That commitment has to 221 11/30/98 - WHOLE - BILL NO. 980796 be made. As I said, this --
Has that commitment been made now? And what are the funds that are needed to do this?
That is something that you are going to have to take up with the commissioner, but as I understand it, there is a commitment on the part of this administration. And I am not speaking for them. But there is a commitment to do something, that this is an important function that has been neglected for far too long.
Okay. But now just so I am clear, the position of the Committee of Seventy has not changed with regard to actually expanding in three areas as opposed to the one that you are advocating today?
So you still think that we should go to universities and possibly other law enforcement agencies? Are you talking other police organizations, or are you talking about U.S. Marshals, FBI, Secret Service, Customs? 222 11/30/98 - WHOLE - BILL NO. 980796
Wherever you find those training criteria, where you are going to find some of the things that Councilman Kenney talked about. And you shouldn't be restricted -- I mean, this bill does, but, you know, there is no 7 logical reason why you shouldn't search out other departments; for example, why you shouldn't search out the FBI, why you shouldn't search for interest and other jurisdictions. It doesn't -- but if you are going to do that -- again, it is only a piece of the whole puzzle. And to think your recruitment is going to solve everything is wrong. And also there is a totality of commitment for change in that department -- I respect the department. But let us not kid ourselves to suggest that there aren't problems in that department, that there have been problems for a long time, problems in terms of management. I mean, look at the crime statistics. We could kid ourselves and say that everything is wonderful, and we could kid ourselves and say one man, John Timoney, comes in and does magic and everything is fine. Well, it 223 11/30/98 - WHOLE - BILL NO. 980796 is not fine. Our study indicated there have been profound problems in that department for years. And everybody we talked to, whether leadership or whether management, whether union people, whether patrolman, everybody acknowledged that there was a problem and different kinds of problems. But this problem was focused on by everybody. And that is: How do we get the new people who are coming in to be as qualified, who are going to watch our backs? And that is the key to it. Even for people who are never going to face a gun in their lives. Having the people on the job who are going to back you up is vitally important. And each of them, in turn, said, number one, look at the numbers, just look at the numbers, who is applying, who is getting in? Part of it relates to the matrix. Everybody knows that. And I would love to hear somebody, you know, tell me how good the polygraph is, and how we can justify it, not only its accuracy but its expense, when nobody else in the United States, no other city in the 224 11/30/98 - WHOLE - BILL NO. 980796 United States uses a polygraph except in very rare selective instances.
Notwithstanding the residency issue, could you highlight for us more in the bullet fashion any other obstacles to having a good recruitment program, or do you think that the City, whether it's the police department and central personnel, is doing all that they can to ensure the recruitment of the best qualified people notwithstanding the fact that presently you can't recruit from the outside?
Would it be appropriate considering the line of questioning that Councilman Nutter is entering into relevant to actual recruitment and personnel policies that either the commissioner and/or personnel director approach the table, in order to save some time. And maybe there are some questions that Mr. Voigt through his studies aren't able to answer, but the specific commissioner and personnel director 225 11/30/98 - WHOLE - BILL NO. 980796 may be able to, if that would be acceptable?
Councilman, if I can make a mention, I have a full set of questions for the commissioner and the personnel director. Mr. Voigt is here in his capacity as executive director of Seventy, I've read his report on a couple of occasions. I would just like to establish for the record their analysis of what some of those recruitment problems are. I think that will be helpful for the later on discussion.
And with due respect to Councilman Nutter's position, I am requesting the Chair rule whether or not -- I think it's appropriate to them at the table now. There are certain questions that I think -- that I felt Mr. Voigt it is best to answer but was unable to answer because he just doesn't have the hands-on, day-to-day experience.
My question had to do with what in their study did they deem to be some of the other problems with recruitment? 226 11/30/98 - WHOLE - BILL NO. 980796 Putting the residency issue aside and whether the department and central personnel, in their opinion, based on their analysis are utilizing all of the tools and resources available to them within the perceived current restraint --
So you are requesting information regarding their study?
Our study clearly indicated that whatever recruitment is taking place is being done inadequately, that it is not being funded as it should be, and that it has not been a focus for years and years and years and years. And that has to change. And that changes with a commitment on the part of the commissioner and on the part of the administration that this is important. For years and years, it wasn't a squeaky wheel. And when you put -- the squeaky wheel gets the grease. That's how the municipal government works, as well you know. And up until the point where you had -- your population drop off is one 227 11/30/98 - WHOLE - BILL NO. 980796 of the major factors, but so is the economy. You know there are people who can do other things.
Let me ask you one other question, because I know we have other witnesses. A two-part question: One, are you aware of any other cities that have aggressively pursued primarily military people for the job of police officer?
San Jose, California, which has an excellent police department.
I think New York does. I am not positive. What we did was, if you look on the charts in the back to the book --
Okay. And as a part of that question, do you have any information on the impact of small, medium are large numbers of military personnel 228 11/30/98 - WHOLE - BILL NO. 980796 becoming police officers in urban areas and any impact, good or bad, that those officers have had in a civilian environment versus what they were trained for, which was the military environment.
Well, no. There are no 7 such studies that I am aware of. But I would suggest to you, Councilman, that MPs are not changed to be rifleman. I mean, their first job is a job which is almost directly the same as a police officer; the mentalities are the same.
The job is a police job dealing with other military people, correct?
Thank you. At this time at the request of the stenographer -- yes.
Before you break for the recess, I just want to make one request. 229 11/30/98 - WHOLE - BILL NO. 980796 Councilman Cohen on two separate hearings now has raised the issue of individuals who do not live in urban areas and they may not be as qualified to be police officers in urban settings. If the councilmember is aware of any studies, empirical data or any information that is not just anecdotal, that may help us under- stand his position better about why an individual from West Virginia or from Kansas or -- I brought that up, specifically, councilmember, that -- West Virginia or Kansas or North Carolina would not be qualified to be a police officer in a major city. If he has such studies or empirical data, I wish he would refer them to the Chair. Thank you.
Thank you. At this point in time we will call a ten-minute recess at the request of the stenographer. Also, I will give a copy of testimony from Dr. Jack Greene to the stenographer. He was here and had to leave. And I would ask the Sergeant-of-Arms to please give a copy to each 230 11/30/98 - WHOLE - BILL NO. 980796 member of council. Thank you. (Brief recess.)
Mr. Voigt, would you please come back to the witness table? Councilman Cohen, do you still want to ask Mr. Voigt questions? Councilman Rizzo, did you want to ask Voigt any further questions? Your light was on when we recessed.
Mr. Voigt, thank you very much. Commissioner Timoney? Is Commissioner Timoney in the room?
I think the commissioner was anticipating that Stephen Preston was going to go before him.
Just point of order. Traditionally there has been the opportunity for the administration to testify. 231 11/30/98 - WHOLE - BILL NO. 980796 The commissioner wasn't in the room, so we proceeded as a result of a time problem. But I would like to hear from the administration first as to why it is they want this bill.
Commissioner, are you ready to testify, or did you want Mr. Preston to testify before you? COMMISSIONER TIMONEY: It makes no 10 difference to me, but I thought Mr. Preston would want to testify.
Would you please speak into the microphone and identify yourself please.
Stephen Preston, and I am the legal director. We were here in support of this particular bill. And we are here in support of the commissioner's request that the residency requirement be changed. We have previously handed out some 232 11/30/98 - WHOLE - BILL NO. 980796 testimony, and I don't want to recount it all, but I just want to highlight the fact that the Supreme Court of the United States over the last half century has made it fairly clear that we are one area of people, and as such we have a right to travel from jurisdiction to jurisdiction. It turns out my office has never had a request from anybody wishing to become an applicant for the Philadelphia Police Department who resides outside the City. So we never had to be forced before -- as we had, for instance, in 1985 when we sued the City of Philadelphia to try to abolish the polygraph test. That is something we took before federal court, and, unfortunately, we did not prevail in that instance. We are, however, prepared, if we were requested, to file a challenge to the present requirements that someone would have to live in this city before one could even make an application. We have set forth in our testimony, my testimony, several cases that stand to the proposition that having to live within the jurisdiction prior to being able to even apply is 233 11/30/98 - WHOLE - BILL NO. 980796 not consistent with the right to travel, which has been delineated by the United States Report. So it really is on a happy note that I am here noting that there is some thought being given by City Council to begin to move away from the fairly restrictive requirements, since it is holding itself up to having individuals who reside outside of this city, but in the military can become members -- or at least applicants to become members for the Philadelphia Police Department, ultimately to take the position, that any of these restrictions are not consistent with the Constitution. Having said that, once an individual is hired, this city is on much firmer ground that a person who is employed by the department that to live with the city for some of the reasons that have already been talked by City Council. So that essentially is my testimony. I am here to say, again, in support of the bill 22 and in support of the commissioner's request that this bill move forward. Thank you. (President Street returns to the 234 11/30/98 - WHOLE - BILL NO. 980796 Chair.)
Thank you very much. The Chair recognizes Councilman Cohen.
Mr. Preston, you state and you indicate that the reason you support the bill is because of the Supreme Court ruling. Is that the basis of your support for the bill?
Right. It is explicitly on constitutional grounds, on call -- on many Supreme Court cases. There is no one case that stands for the proposition that an individual wishes to become an applicant for a police department may do so even if one doesn't reside in the city. But we think there is sufficient precedent that the requirement set out by this city are at odds with that contusion.
Let me ask you: What was your statement? I didn't get it with respect to residents after applying.
It seems to me the balance of equities and the concerns attached to employer's ability to regulate the employee and 235 11/30/98 - WHOLE - BILL NO. 980796 to attribute the employee is comfortable in the working environment would change at the point if the individual has now been actually hired. And so the fact that City Council even moves on its own or may ultimately be required to change its requirements by federal decree, that would not change the ability of City Council to insist that its employees live here in the city.
I am sorry. I still don't understand the position. I am not questioning right and wrong or sound as to unsound. But I would just like to know, what is the position of the ACLU with respect to the residency requirement following employment. Is it that you believe, the ACLU, believes and advocates that the city has a right to impose a residency requirement?
Now, if there were no constitutional rulings by the Supreme Court, would the ACLU have a position on the subject?
I am not sure we would have a position other than the fact that, as you 236 11/30/98 - WHOLE - BILL NO. 980796 know for the last several years we have been working with the City as a result of a settlement of litigation for NAACP versus the City of Philadelphia. And we have been working closely with this particular commissioner, who I think is being -- has brought energy and vision to the department. In light of what I have learned as a result of working with this department, in light of the Committee of Seventy's report, I think my own personal opinion would be City Council ought to expand the pool open to the department. But whether I will be here, I can't say. I answer to a board that answers or moves because of constitutional concerns, because of constitutional concerns that we are going to get.
Well, do you think that the experience of living in an urban environment is the factor important or otherwise in making the choice as to the selection of the candidate of the police force?
I have no studies on either side of that issue. I certainly as a resident of this city, as someone who grew up in 237 11/30/98 - WHOLE - BILL NO. 980796 an urban environment as well, I would want there to be training in the department about the the culture, our life on our streets. But it seems to be that just because someone has grown up somewhere else doesn't even mean that one can't receive the kind of training that will make one sensitive to what goes on within a large metropolitan area.
Well, you have confidence in the training, but we have all sorts of training in other areas. But things like sexual harassment seem to be expanding rather than contracting the more there is education and other things. I just find it difficult. May I ask you this: In coming to the conclusion, did the ACLU enter into discussions with other organizations that have a particular interest with respect to urban life?
Yes, Councilman Cohen, we did. And at the very beginning of my testimony or the written presentation, I made mention of the fact that prior to coming here today I discussed this testimony with the president of the Philadelphia Chapter of the 238 11/30/98 - WHOLE - BILL NO. 980796 NAACP. And it is my desire -- I have also discussed this with my other client in the NAACP litigation, which is the Police and Fire Relations Practice Project, Mr. Will Gonzales. And I believe Mr. Gonzales will be testifying later. And we both will take the position that this is something -- this move to widen the pool is in good faith.
First, Mr. Preston, your testimony and position on this matter is strictly a legal one, not a public policy position; is that correct?
Do you have any particular personal or official feelings beyond the constitutional issues on this particular issue?
I do, as I indicated to 239 11/30/98 - WHOLE - BILL NO. 980796 Councilman Cohen. I believe that the present police commissioner has brought a lot of energy and depth of vision. It is my understanding that he believes this would be a good thing, that this is something that I would like to be able to be supportive of. And certainly we have had a (unintelligible) of -- we are in a dialog about much in the department. And so when we can make from the ground, I would like to do my -- I have attempted to do that.
And not notwithstanding the current attributes of the current police commissioner, how many police commissioners have you worked with in your time at the ACLU?
Well, I have gone all the way back to Willy Williams in Houston, Texas, who opened up to the commissioner shipping in New York. And then I have been here through Commissioner Samburg's (ph) tenure to address --
There is no 240 11/30/98 - WHOLE - BILL NO. 980796 guarantee?
Okay. Now, with regard to the legal argument, and you know that I am reluctant to get into a constitutional argument with someone as qualified as yourself, but I will struggle on. Your position is that if we make the change, purely the constitutional argument, that last line of your testimony, "adopting this bill could be a good first step towards resolving constitutional problems inherent in the city's present pre-employment residency requirement --" that is from your testimony. And I guess it strikes me as -- well, I will just ask the question. You seem to believe that the pre-employment residency requirement for all City jobs, manufacturing, and then you said for the moment, let's change it for the police department, doesn't that potentiality if not, in fact, give a future litigant more cause to file a challenge given the fact that we would have, under your contract, changed it for one area not for the others as opposed to just 241 11/30/98 - WHOLE - BILL NO. 980796 keeping it -- I am not making an argument one way or the other about keeping it or not keeping it. I am making a legal argument. (Continued) -- changing it for one instead of keeping it the same for everyone, doesn't that, in fact, raise a larger red flag for the potential litigant that something is going on here and then asking the question, "well, I don't necessarily want to be on the police force, I want to be in the Recreation Department, and if you change it for the police, you've now created an unfair situation for everyone else that wants to apply for something. Isn't that one of the potential results of only taking it for one and not for all?
That may absolutely be the case. I would much have preferred --
I would much rather before City Council a bill that says, City Council, I would like to change or abolish its pre-applicant process in toto. But the ordinance 242 11/30/98 - WHOLE - BILL NO. 980796 before us is a limited one, and I think it is a small positive first step.
So from your perspective, this will be the start of that process, that we would, in fact, be taking a step down that road?
It would be my hope on a constitutional basis for the reasons -- the very reasons you suggest, that that would be the ultimate goal that we would be reaching.
And would you agree, at least legally, we will professionally be on stronger grounds -- again just for the legal argument, that we would maintain some greater strength of position if it was the same for all as opposed to different for one narrow segment? Which is the stronger argument for the potential for defense for the City in this particular case?
When you first -- posited the attack, I immediately thought --
I never attacked you. 243 11/30/98 - WHOLE - BILL NO. 980796
My feeling was, absolutely, protect it all. This would now not only give the litigant the right to travel, but also would present on the protection challenges because there was some treatment. But as I thought about it, equal protection really doesn't come into play because we are not talking either about what the law presumes is suspect categories of individuals; that is, the legislation turns on race or alienage, nor are we really talking about carving up privileges in such a way that I think adds anything to the attack. So often it leads to the same tact, so the litigants make the same challenges regardless of whether you have done this or not.
So then lastly, you are saying that the Courts have ruled that people have a constitutional right to travel and go to whatever city they want to, and if a particular city has a pre-employment residency 244 11/30/98 - WHOLE - BILL NO. 980796 requirement, that that, in fact, infringes upon their ability to travel wherever they want to travel to try to get a job even though that requirement cuts all the way across the boarder and effects everyone, but then the courts have stopped at the point of establishing residency once you get the job? I mean, is that still valid?
And that is not a restriction of your travel at that point?
No. Because the balance of equity tips at that point. And they are simply negotiating. An employer some legitimate basis to draw the distinctions which were not returned when one was receiving or simply asking a similar position.
And so you are saying that the Courts have said there is no 21 legitimate reason to have a pre-employment residency requirement for anybody?
Those were the cases I was able to pull very quickly. And I didn't have much time. I was asked late in the week last 245 11/30/98 - WHOLE - BILL NO. 980796 week to take this test -- I very quickly came up with federal and state cases that had struck these kinds of clientele.
And my last request is more of a informational request. If you could, because I know you will have much more time when you come back, could you attempt to find any cases in the reverse position that pre-employment residency has ever been upheld.
Yes, if I -- I have not to date. But if I do, you have my word that you will be forwarded it.
Thank you very much. I only have about six lines of questions that I would like to pursue with you. Just kidding. Any other member have any questions? Thank you very much. Councilman Rizzo, I see you sigh a breath of relief. At this time we would like to have the police commissioner, Commissioner John Timoney. 246 11/30/98 - WHOLE - BILL NO. 980796 Thank you, very much, Commissioner. Before you proceed with your testimony, you are going to have to explain that thing on your foot, because we know you are a runner, and we know it must be paining you to have it there. And I know you ever been asked a zillion questions about it since you have been here, you might as well put it on our record. COMMISSIONER TIMONEY: Thank you, Mr. Street. This is a -- as you are familiar with -- a running injury that has been bothering me for five years. And I have a great tolerance for pain. And so I tolerated the pain for five years. But as you are aware, I ran last May with you in the Broad Street 10-mile run. And while I can take the pain, I just couldn't take the embarrassing slow time. So I decided I better have this thing taken care of. So I had an operation this week. And the stitches will be out next week, and hopefully I will be running by the New Year. Thanks for the inquiry.
Please proceed. 247 11/30/98 - WHOLE - BILL NO. 980796 COMMISSIONER TIMONEY: Good afternoon. I am commissioner John Timoney, and I thank you for giving me the opportunity to testify in support of Council Bill No. 6 970212/980796. I have testified previously on this bill, and my testimony is in the record. And so I will just mention a few key points. Before I mention those points, to my left and your right is my counsel, Karen Simmons, and to my right and your left is Special Assistant John Gallagher. There are a few reasons -- pretty good reasons, I think -- why I urge the Council in the strongest fashion to pass the legislation before you. Number one, there is a hiring crisis in policing circles, not just in Philadelphia but throughout this country and in every large city. Cities like New York, for example where just a few years ago on any given examination would attract upwards of 40,000 candidates, as recently two months ago received a total of 4,000 applicants to take the police officer's exam in New York City. And that's -- 248 11/30/98 - WHOLE - BILL NO. 980796 they were looking up there to hire between 1500 and 2,000. Recognize that in any pool of applicants, you wind up -- as a result of a whole host of things, you wind up usually hiring one out of every ten that apply and sit for the exam. If you just do the math, New York City, had they gone ahead with the exam -- which they didn't -- would have realized a final candidate pool of about 400 people, some to 1500 short 12 of its hiring. Similarly, Philadelphia, the last exam we gave was in June of this year, 2300 applicants sat for that exam, while on the previous two exams, each had over 3700 people apply. But even eight or ten years ago, it was common for the Philadelphia Police Department to attract upwards of 10,000 applicants. Now, I understand the visceral reaction on the part of some Members of Council and some of the folks in Philadelphia to want to put aside or save the job of police officer for local young men and women. I understand that. But I think -- I think it is short-sighted. 249 11/30/98 - WHOLE - BILL NO. 980796 If the law before you today was to be passed, it's not going to result in thousands of people flooding the job market here in Philadelphia. My expectation would be, hopefully, you would get a few real good candidates, a few good men and women that will be willing to come in, take the exam, pass, and then hopefully be sworn in. You're really looking at, you know, a handful of possible future, what I call, superstars, the future leaders of this department. So I think some of the opposition to this bill, I think is misleading and that leaves the impression that literally thousands of young men and women from the Navy and Army bases around the country will flood the market. And that is just not the case. I was part of an initiative up in New York in the early 1990s under commissioner Lee Brown and Commissioner Ray Kelly where we conducted an extremely active, aggressive recruitment campaign on military bases. And we did have some success in attracting candidates who later on became police 250 11/30/98 - WHOLE - BILL NO. 980796 officers. But trust me, the numbers were nowhere near what one would have expected, number one, and certainly probably what we would have expected. I thought we would have done better. Nonetheless, we did get some very attractive candidates to sit for the exam, and some of those candidates are now presently members of the New York City Police Department. But for the police department recruit, for the ranks of those who have honorably served in our nation's armed forces, the bill before you will significantly increase the pool of qualified candidates. Military personnel often make good police officers. By their nature and training military personnel are dedicated individuals. They have demonstrated their dedication to civic duty by the service.
By virtue of the military organization and rank structures, these individuals understand the need and requirements of discipline. These individuals are also proven workers as their honorable discharges attest to it. Since the military determines where the 251 11/30/98 - WHOLE - BILL NO. 980796 subsequent home is during his or her course of active duty, residency is not a matter of choice for the men and women who serve in the military. The military installs maturity, experience, and pride of service in others. These are ideal qualities for future Philadelphia police officers. They are also ideal qualities for the type of people who want to move into the city. And so we should welcome them as productive new citizens of the City of Philadelphia. I had noted earlier or read earlier or heard earlier some testimony regarding the seeming dichotomy of recruiting people from the Armed Services who have trained to go out and obviously kill an enemy and that that is not necessarily the attributes that you want in a police officer. I couldn't agree with that any more strongly than it was stated. However, there are other attributes that Army and Navy personnel possess: leadership skills, the whole idea of working in teams, discipline, all of the things that I outlined in my testimony just two months ago. 252 11/30/98 - WHOLE - BILL NO. 980796 So I think the great attributes that candidates from the Army or Navy or some of the services would bring to Philadelphia are so desirable that they would outweigh any kind of negative connotations that somebody may want to apply or put up on some of those kind of service people. In any event, my position on this matter is quite clear. I think this bill should be passed. I hope you will agree with me. And I will stop there and I will answer any questions that you may have.
Madam Chair, Mr. President, I need to be excused for about 16 minutes. I have a meeting with the 17 Superintendent of Schools in a conference room 18 with some members of my neighborhood, so I would 19 like to be excused. But I do want to be a part 20 of this discussion.
Thank you very much. The Chair recognizes Councilwoman Verna.
Thank you. 253 11/30/98 - WHOLE - BILL NO. 980796 Good afternoon, commissioner. COMMISSIONER TIMONEY: Good afternoon.
Commissioner, can you tell us how you feel about the polygraph test and if there should be some change made to address that issue? COMMISSIONER TIMONEY: I have made my feelings known quite publicly from the day I arrived here. I came from a department that did not use a polygraph exam. And so the use of a polygraph exam is something new to me. I am familiar with some of the more notorious cases where the whole exam seems to have fallen flat on its face. And so I am completely open. And I am in the process of reviewing our use of the polygraph. I have not made a commitment one way or the other in my mind. And I am serious about this; I am completely wide open. And my personal feeling is that we could probably achieve, with a very good aggressive background investigation, some of the results that we've achieved through a polygraph. 254 11/30/98 - WHOLE - BILL NO. 980796 However, I have had meetings with senior staff, and they have made to me some pretty compelling items in favor of continuing to use the polygraph. So the debate, the discussion continues. But let me say, some of the more notorious cases that have been in the press recently make for good reading. They may or may not, in fact, be true. It is pretty hard, one, to tell; two, to discuss because there are issues of privacy and things of that nature. Suffice to say that in all of those cases that have come to our attention, either through the press or when I go to community meetings and egregious or seemingly egregious cases come to my attention, I actually look into those things. And to date, I haven't come across a case where I would overrule the findings of the examiners.
I don't understand how an applicant can take three or four polygraphs for the police department, fail and yet be accepted with either the FBI or CIA. However, that being said, I believe I wrote you a 255 11/30/98 - WHOLE - BILL NO. 980796 letter in the early part of the month, and we talked about looking for candidates who had military experience. And I had one of my constituents come in to see me. And apparently had served five years as an MP. He took the police exam, because both of his parents had been police officers, and he was very, very much interested in becoming a policeman. I believe he received a score of 104, that was with ten points including his military service. He passed all phases of the examination, with the exception of the polygraph. So here we are saying that we want young men and women who have been in the military -- they score very highly. And I will tell you, I never met a young man who was really so charming and very courteous and everything was yes, ma'am, no, ma'am. You know, I don't know what we're looking for. And he said he would swear on a stack of Bibles that he had never attempted to use drugs. I don't know what direction we're going. I mean, if the polygraph is denying 256 11/30/98 - WHOLE - BILL NO. 980796 people like this and youngsters who are accepted with the FBI or CIA and they are not good enough to be on the police force with the City of Philadelphia, I just question that. COMMISSIONER TIMONEY: Well, I don't necessarily disagree with you. And prior to coming here I was familiar with two cases where young men, both from two of the so-called best schools in the nation, failed the polygraph for the FBI exam. And it's usually for the same -- usually around the same questions having to do with drug use, prior drug use. I think one of the problems -- and clearly when I came here, I looked at the matrix that was set up that helps the background investigation unit determine whether a candidate is qualified or not qualified, meets buster or doesn't meet buster. When I looked at it, I thought, it was, in my opinion, far too stringent, not flexible enough and that really had no -- no redemptive qualities about it. So, for example, automatic disqualification occurred for drug use no matter how young or no matter how insignificant. 257 11/30/98 - WHOLE - BILL NO. 980796 Now, I don't have all of the perfect answers, but let me tell you from a personal and a professional point of view, if a young man or a young woman has used drugs when they were and 6 16 -- I'm not talking about selling them. I'm 7 talking about recreational use, tried it out and 8 tested it -- and then that individual was going 9 through the teenage years and stayed out of 10 trouble and they are now 20 or 21 and they've 11 gotten out of high school and they haven't been a 12 problem, they are overall pretty good kids, I've 13 got no objection. As a matter of fact, I have no 14 problem whatsoever in hiring such a person. 15 The matrix that existed when I got here would have automatically rejected those people. I don't automatically reject anybody. I like to look at people; you know, look at them and see what they've done and don't just hold one or two minor strikes against them. I think it's wrong. So hopefully some of the changes -- there were other changes within the matrix. Hopefully some of the changes we've made will help us in administering the polygraph, if we 258 11/30/98 - WHOLE - BILL NO. 980796 continue to do so. So, for example, if I ask you the question, did you ever try drugs and you say, yes, I mean, that will not automatically disqualify you. So we are trying to get some reasonableness, some common sense and really -- I absolutely believe in redemption and giving people a second, third chance. I got second and third chances in my youth and life growing up. So, I am not as hard-nosed as maybe some other police officials will be in this regard.
Now, we talked about the polygraph test. And as I said, I've had many, many young men come into the office and they do very, very well with every phase of the examination with the exception of the polygraph. And then on the other side of the coin, I read in the paper maybe nine months ago or a year ago that a police officer had been on the police force for two years before they found out he committed a very, very, very serious crime. So why didn't the polygraph pick that up? I think it is so erroneous. I really do. 259 11/30/98 - WHOLE - BILL NO. 980796 COMMISSIONER TIMONEY: Something has to clearly -- it is not infallible, which is one of the reasons it is not admitted into court. However, it is supposed to be just a tool to assist you in conducting background investigations, and it shouldn't be the sole, I don't think, criteria.
Would you know at this point in time how many individuals have flunked the polygraph in the last say year or two? COMMISSIONER TIMONEY: No. 14 Not, I mean -- people, as I mentioned earlier, you wind up hiring one of every ten candidates that sit, and people wash out for a variety of reasons: failing the polygraph; a lot more wash out as a result of failing the pre-employment medical, and things of that nature; they failed out of high school. There are a whole host of reasons why people wash out and don't make the final cut. And I do not know the final statistics. But I will check with Mr. Norris and get back to you.
Thank you. 260 11/30/98 - WHOLE - BILL NO. 980796 Thank you, Mr. Chairman.
Thank you very much. The Chair recognizes Councilman Rizzo.
Thank you. Commissioner, this change that you are discussing today, are you satisfied that it should be limited to the way it is written with military personnel? Why such a narrow focus when we have -- I've received numerous calls from the police officers working in small departments, many of them training in the Philadelphia Police Academy that would like an opportunity to be Philadelphia police officers. Are you looking to expand that beyond active-duty military? COMMISSIONER TIMONEY: Well, my own personal and professional opinion is, I would love to -- absolutely. I would love to go to New York; I would love to go to Washington; I would love to go to Baltimore. I would love to recruit all over this country. Again, I don't think you are going to get the huge numbers that people are worried 261 11/30/98 - WHOLE - BILL NO. 980796 about. But you may wind up getting a few potential superstars. And I think that is desirable for everybody. Besides, the one thing that I think that some folks forget is that we have the residency requirement when people are hired that they must move to the city. And I am all for that. So I don't see the objection to encouraging people to move into the city to take a move from New York or Baltimore or Washington or California or whatever and to then to settle down in Philadelphia and one of the neighbors is their family. I think it is just a win/win --
Commissioner, you are not just locked into just active-duty military personnel? COMMISSIONER TIMONEY: No. The bill 19 before us addresses that very issue. But I've said from Day I would like to recruit literally 21 from all over the country. 22
Commissioner, I am 23 hearing today there is possibly a problem with 24 the entire process. And I made comments earlier 25 that we were discussing the lie detector. We are 262 1 11/30/98 - WHOLE - BILL NO. 980796 talking about lists that run out after a period of time of qualified people that have met the requirements that just fall through the cracks, the lists run out. And we have police officers that at a very young age have the ability to retire. What are we doing about incentives in areas of pension to keep men and women 40 years old, years of service on the job without 11 stopping them from -- or giving them some 12 motivation not to retire? I mean, I am hoping 13 that we are looking at this entire process before 14 we make significant changes to the way we do 15 business. 16 COMMISSIONER TIMONEY: Oh, we are. 17 And I guarantee you, Mr. Rizzo, we are at 18 completely at opposite poles when it comes to 19 this issue. Rather than keeping people, I would 20 encourage them to leave. One of the things that passed here some years back, the mandatory -- I'm sorry, the minimum retirement age had been 45. And somehow it was changed from 45 to 50; in other words, you couldn't retire until you are 50. 263 11/30/98 - WHOLE - BILL NO. 980796 That is in nobody's best interest. My sense is that -- I haven't looked at the issue increasing literally all over country -- that quite by accident and not by design, New York may wind up having, despite itself, one of the better systems. In New York, you are allowed to retire after years, so you can retire when you 10 are 40 and 41. And people are not hesitant to 11 make career choices when they are 40 and 41 to go 12 on to other careers, especially if they haven't 13 moved up the rank structure, they haven't become 14 sergeant or detective. 15 Where if it's 50 -- I think 16 Philadelphia is 50, and I think Boston is 53 or 17 55 -- when people have reached that age and 18 haven't moved up in the organization, haven't 19 really bettered themselves, the possibility or 20 hope that those folks will retire within the profession diminishes with time. You wind up with people who probably shouldn't stay on who wind up staying on because they are not going to make second career choices as they are entering their early 50s. 264 11/30/98 - WHOLE - BILL NO. 980796 The bottom line is, if you are allowed to retire after years, then you should 4 be allowed to retire after 20 years no matter how 5 old you are, whenever 20 years takes place. 6 So I've heard this argument for years 7 and years and years, the whole idea of retaining 8 seasoned veterans. 9 We can sit down and have a 10 discussion. Maybe it's on a regular problem, but 11 my sense is it would take a week of regular 12 problems to discuss this whole issue. But 13 things, as the song goes, aren't always what they 14 appear to be. 15
Thank you very 16 much. 17 The Chair recognizes Councilman 18 Nutter. 19
Good afternoon. 20 COMMISSIONER TIMONEY: Good afternoon, sir.
Sir, I would like to go to your -- either someone from your office or -- somehow I got a letter dated November 25th, 1998 attached to what I guess is your testimony 265 11/30/98 - WHOLE - BILL NO. 980796 that you gave at the first hearing. COMMISSIONER TIMONEY: Right.
Why don't you go to that? Your testimony at the time, you talked about New York City facing this problem. You've alluded to it in either prior testimony or in your earlier remarks. When New York faced this problem even with apparently, in your testimony, lenient residency requirements, what did New York City do to address the recruitment problem? COMMISSIONER TIMONEY: Are you talking about now?
Yeah. Is that -- COMMISSIONER TIMONEY: I have no idea what they are doing. This just happened, Mr. Nutter. This was, I believe -- it was only in the last two months.
Oh, okay. COMMISSIONER TIMONEY: So what they did and what they are doing, I am not sure. I mean, I do have friends that I stay in contact with, but that issue, actually, surprised me somewhat, because they hadn't had problems for 266 11/30/98 - WHOLE - BILL NO. 980796 some time. But my sense is -- I can't prove this. But my sense is that there has been such a hiring binge, if you will, for want of a better term, over the last five and six and seven years as a result of the legislation passed under Mayor Dickens, where they've hired literally or 9 12,000 new police officers over that period. 10 Maybe that in conjunction with the great economy -- I mean, there are plenty of jobs out there with good people that -- also people that are done with the Civil Service. Let me just point out that the so-called greatest class, smartest class, brightest class that ever went through the NYPD throughout its whole history -- and they track this stuff pretty good up there -- was the class of 1939. And there were a lot of graduates and a whole host of people that later went on to run the department in the early '50s.
Is that your own class? COMMISSIONER TIMONEY: No. No. 25 Ironically, the '67 or '68 class was known for 267 11/30/98 - WHOLE - BILL NO. 980796 something different than scholars. We were known as mostly criminals and things of that nature.
The question was raised earlier, although not by myself, I believe to Mr. Voigt, do you have a particular type of military person that you plan to go after? The bill is, even in this area, just talks about military people. There are a lot of different people in the military. The example was made and there was one person who testified -- which it was certainly interesting to see the young man who is an MP in the Navy -- there is nothing to require you to go after people with actual policing background with their military background or preclude you from going after those people, it is just all military; is that correct? COMMISSIONER TIMONEY: That is correct sir, yes. Basically you are using, the people in the military and the military base is just as the recruital.
I understand. COMMISSIONER TIMONEY: So it's really more of a target audience than anything else. 268 11/30/98 - WHOLE - BILL NO. 980796
Whether a person is an MP or a mechanic, both would be able to go after the job and apply for it? COMMISSIONER TIMONEY: Clearly. The appealing thing with the military, it is painted on a whole variety of levels and for a whole variety of reasons. But some of the raters involving police recruitment and police hiring some specific to this city, most specific to all of these cities, the issue of race and how do you get a good number of qualified minorities. I mean, you have a pretty good ready pool there at the military bases. We had some discussion a month or two ago. The Army and -- well, not just the Army but the Navy, also, has done -- the whole institution has done, I think, a great job in the area of getting a diversified work force, much more so than, I think, some of the more enlightened institutions. If you looked at "New York Times" today in reference to two of the more prominent schools, Dartmouth and the University of New Hampshire and the problems they are having attracting minority, not just minority students 269 11/30/98 - WHOLE - BILL NO. 980796 but also minority faculty, when you start to look at military services, they've done the an enormous job.
How many officers do you anticipate hiring in the next year or so? COMMISSIONER TIMONEY: I don't have the actual figures here on me, but I think we have at least three classes that are lined up, that are scheduled, you know. By the way, one of the real benefits -- one. There are lots of benefits, but one of the real benefits over the last three or four years as opposed to prior years has been -- which is has been pretty helpful, has been the kind of regularity from hiring. The history of not just this police department but certainly New York and most major police departments has been the uneven hiring practices that causes you, after you have gotten a good recruitment and background investigation unit set up, there is this hiring freeze and you wind up closing down those units. Then the academy has to start up again in a year and a half with little notice from the administration, 270 11/30/98 - WHOLE - BILL NO. 980796 no matter who it is, and then you expect to get the same people that you've trained to run the academies and run the background units. And they say, no, I am not going back to that unit. I already found a niche somewhere else in the detective division or the narcotics division. So uneven hiring practices are problematic.
Most of the hiring over the last few years has primarily come as result of taking advantage of the crime bill. And I believe we are pretty much at the end of that. I think the statistic generally is in Philadelphia we lose about to 30 officers. 16 COMMISSIONER TIMONEY: 30, yeah. 17
So we certainly 18 have to replace those. And I don't know what the 19 future plans are for just pure net additions to 20 the force. But you would expect most classes are 21 what usually, what, 80 to 100 officers? 22 COMMISSIONER TIMONEY: Usually 100. 23 But having said that, the one thing I am not 24 going to sit with a flat hand, I would like to 25 make -- or recommend, at least -- I don't make 271 11/30/98 - WHOLE - BILL NO. 980796 changes that I can make, but I also recommend other changes that may create a more dynamic organization. I mean, I would be in favor of looking at a whole host of things to get the organization moving.
And I would be glad to at some point in time to talk to you about those. I think one of the things that you've possibly taken either from today's testimony or previous testimony has some level of, I think in your words, earlier opposition, may not show the opposition but maybe more of an interest in knowing what the overall plan is for the department. I've shared with, you know, some people who are here in the room today or folks around you, the greater interest in the larger plan. This can only be, at best, seen as a part of a whole series of other changes that need to be made. To be honest with you. I would be much more interested in the bill and its points if I could see it in the context of a larger plan 272 11/30/98 - WHOLE - BILL NO. 980796 having to do with age, education, and having an extensive discussion about polygraph tests itself and other issues that affect the department. Because I, quite honestly, have not been able to really figure out even with this positive tool, if no other changes are made or if we are not aware of those changes being made or there are no 9 discussions about those changes being made, what goes on with the recruitment unit. And I want to ask you some questions about that. And I don't really see how you get the maximum benefit out of out of it. And as I said, I am less interested in having the discussion because I can't deal with a larger context. Let's move on. You are aware of two studies done, both by the Committee of Seventy and the Integrity and Accountability Office, I'm sure, right? COMMISSIONER TIMONEY: Yes, sir.
And what the city currently operates under? COMMISSIONER TIMONEY: Yes, sir. 273 11/30/98 - WHOLE - BILL NO. 980796
Can we share your perspective on the impact of any of the unfortunate recent or past scandals that have affected the department, whether it is in police corruption or brutality in areas and any of the impacts of that on our ability to recruit qualified people even with what you view as restrictions on only being able to hire Philadelphians who qualify with pre-residency qualifications? COMMISSIONER TIMONEY: (Pause.)
Do you think there are people less inclined if they think there is something wrong with the organization to want to be a part of it? COMMISSIONER TIMONEY: I'm pretty sure I think I agree with you. I may phrase it a little differently. Not that they may be less inclined as that I think that if you improve the image, the reputation -- if it looks like this is a pretty good place to work, that this place is on the move, this place is on the ball, you tend to want to attract more people.
It's like if you 274 11/30/98 - WHOLE - BILL NO. 980796 were a draft choice -- COMMISSIONER TIMONEY: Yeah.
-- and you are anticipating getting some calls. And maybe you get a call from, I don't know, San Francisco 49ers or Minnesota Vikings or maybe even get a call from the Eagles --
I mean, you want to play football, but the location does kind of matter to you. COMMISSIONER TIMONEY: That's a great question. And I am going to give you the answer you are not expecting. Had that call been made a year ago, everybody would have jumped at San Francisco. My sense is, this year because of the improved image and performance of the Minnesota Vikings, my sense is most would jump on the Minnesota Vikings.
Commissioner, how may we recruit people for the police department? Who are the officers in the unit? How do they get there? What is their background and 275 11/30/98 - WHOLE - BILL NO. 980796 training? And what makes them qualified to do that job? And how long have they been there? COMMISSIONER TIMONEY: I am not pushing off this question, but the whole issue of the recruitment and background units is being addressed. And the background investigations generally has been completely revamped under a new captain. And as I think I mentioned earlier, the matrix -- and I don't handle all of the details because it is an internal document they used, but the matrix has been completely revamped. And I got a presentation probably about six weeks ago by the commanding officer of that unit, the Background Investigations Unit, along with his staff. And -- (unintelligible) -- of the day and up and running and heading in the right direction with some modest suggestions and alterations on my part, they agreed they got their act together. The issue of recruitment, that whole issue, because it involves a few things other than just personalities, is being looked at by Commissioner Johnson. and I am not going to 276 11/30/98 - WHOLE - BILL NO. 980796 comment right now on whether it looks the same or it changes, or the personality will change.
Does it need to change? COMMISSIONER TIMONEY: Well, it depends. And the one things I always do in certain situations, no matter how I look at it, a lot of things, point blank, at individuals or team or something like that, I often look inwards; look at the institution itself. And has the institution done all it can to encourage, or are they just reflecting the attitude of the leadership? And if that's the case, then it is kind of hard to hold somebody responsible for doing just an average job as opposed to above-average job. And so that is part of the overall interview process. The reason why we were able to go so far ahead in the background investigation unit, it was part and parcel of the whole revamping of the internal affairs structure, which is one of the first issues I attacked when getting here. Because it was clear with me that with three 277 11/30/98 - WHOLE - BILL NO. 980796 separate internal affairs divisions, none reporting to the commissioner, I mean that that was going to be what my number one priority is before I can look at the other parts of the organization. And so you may say, well, why did you fix one and not look at the other? The fact is that was a prior issue that I got into.
I understand that. Is it accurate to say then that you are not completely satisfied with the effort and the operation of the recruitment given as it presently functions today? COMMISSIONER TIMONEY: Why don't I put my own words in my own mouth, as they say.
I will be happy to give you an opportunity to. COMMISSIONER TIMONEY: Let me say, is there room for improvement in the recruitment unit? Absolutely, sir. Will there be changes? Absolutely, sir. What will those changes encompass? Will it be just systems changes? Personality changes? That decision I haven't 278 11/30/98 - WHOLE - BILL NO. 980796 reached yet, but rest assured there will be changes.
With regard to personalities, you need to know that I wouldn't know one person in that unit or have any relationship or contact within that unit. If all of them came in here right now, I wouldn't know who they are, so there is no personality issue on my side. COMMISSIONER TIMONEY: Yeah.
In both of the studies, they, whether one read the other study or they arrived on the same conclusion, both reports recommend allowing recruitment at military bases, universities, especially those with historically high enrollment in other law enforcement agencies. How do you feel about that? COMMISSIONER TIMONEY: I couldn't agree more. I could not agree more and --
Did you seek to have that change made legislatively? COMMISSIONER TIMONEY: No. I think when you listen, there are a whole host of 279 11/30/98 - WHOLE - BILL NO. 980796 changes that I would like to make. There are a lot of ideas that I have that I think about all the time in running. And there are sometimes, I guess, compromises you make -- I don't know -- you get past or you try to get past that which you think is passable. And my sense is, if this is legislation that is overly broad or sweeping, it will be less likely in getting passed then if the item was made as it is here for military bases; that it is easier understood, its entire audience. And my sense is there was a better chance of getting this passed than some kind of sweeping piece of legislation that would open up recruitment throughout the whole country, city to city or campus to campus.
Does this go to your quality issue? I mean, it seems to me it is all the same argument, whether it is with military bases or colleges and universities. You're trying to go after highly qualified people, it is no more expenditure. As best I can tell, it isn't any more political capital, it is all the same argument. I mean, did you talk to -- 280 11/30/98 - WHOLE - BILL NO. 980796 COMMISSIONER TIMONEY: No, I --
-- to anybody about this? COMMISSIONER TIMONEY: I'm sorry.
Did you talk to any of the various members about military only versus military colleges other law enforcement agencies? COMMISSIONER TIMONEY: No. We've talked about a whole host of issues.
"We," you mean the internal "we?" COMMISSIONER TIMONEY: Yeah. And with people in the mayor's office. But what's possible and what's not possible, I mean, let's be realistic.
Do you know if they talked to any members of the body about this? COMMISSIONER TIMONEY: I have no 22 idea. I said from Day I think -- and I maybe 23 even said it here. I maybe even said it to you 24 my first day here, that I would like to recruit 25 from all over the country. 281 1 11/30/98 - WHOLE - BILL NO. 980796 But getting the analysis -- and I've had some prior experience with using military bases up in New York in 1992 and 1993 as a tiny population. I've never quite, I guess, understood recruiting. But recruiting is really marketing. And you go after target audiences. And so my sense is, we will get the best bang for your buck and get the best, I guess, possible future police officers, people that are used to working in a semi-military or military organization, people who are well disciplined, all of the things that I outlined in my testimony.
Right. COMMISSIONER TIMONEY: And then there was some added benefit as I mentioned earlier recruit qualified candidates, which is always a desirable goal.
What does the term "test examination" and "candidate's success" -- however "success" is defined on that examination -- what does that tell you about that person's ability to be a good police officer? COMMISSIONER TIMONEY: Oh, you know, 282 11/30/98 - WHOLE - BILL NO. 980796 I am not a psychometrician. I am not trying to be cute about this, but the system is what the system is, the Civil Service system is what the Civil Service system is, whether it is in Philadelphia, New York, San Francisco, Boston. I mean, this is years of practice. Whether I agree with you it is the best system or not, I think we have a lengthy discussion on that, sir.
Okay. I look forward to it. But I guess I am still trying to understand it. Do you think our test gives a legitimate evaluation as to whether or not the person that passes the test, whoever the person is, will or will not make a good police officer? COMMISSIONER TIMONEY: That's the $64,000 question that the Courts have been wrestling with for years, are these exams -- do these exams -- do they do the whole thing? Are they great predictors of future success? I don't think anybody -- I don't think anybody has studied that whole issue, I really don't. They may have said they have, but I don't think. And even when you get past that, when you get into something that would be more 283 11/30/98 - WHOLE - BILL NO. 980796 managerial -- for example, Civil Service exams for the ranks of sergeant, lieutenant and captain -- even there the studies haven't been done with regards to how people do those exams and how they eventually later on, as a supervisor. So I know a lot of answers, but I don't know the answer to that question.
What military bases do you anticipate recruiting from? COMMISSIONER TIMONEY: Clearly you do the most obvious. There are limited resources. It's not like we have all the cops and an unlimited budget so we can start flying them all over the country. So we will go, I would think, with 2, 300 mile radius of Philadelphia, the usual suspects, places in Maryland and New Jersey, things like that.
And how will the people get here? Is that on their own or do we take care of that? COMMISSIONER TIMONEY: I haven't even thought of that, mainly because we want to see what the legislation -- I mean, there are a whole host of issues to do with that. One of the 284 11/30/98 - WHOLE - BILL NO. 980796 things in New York, by the way -- I mean, why drag them all the way down to downtown to some school to take the exam; why don't you just go to the base and administer the exam there?
Thank you. Now, I am sure there are other members that have other issues. I appreciate it. (Councilwoman Verna takes the chair.)
Thank you, Madam Chair. I would like to go back for a moment or two to the polygraph question. Because in my private practice before I became a district Councilman subsequent, before I came back to council as a councilperson-at-large, I had many folks -- because I operate in the community -- many folks in the community that would come who sought to get on the police force. And the one thing that stood out constantly was the polygraph test. The number of complaints must have been 50 to as other complaints. And generally, 285 1 11/30/98 - WHOLE - BILL NO. 980796 it was because the applicants were young and they had apparently made the decision to say no to the question of have you ever used drugs. And once having said no, they apparently, if they were given a second opportunity to take the test, they were frightened and would say yes for fear then they would have, you know, admitted to having lied. And would they take the no, was usually wrapped up with the fact they couldn't be sure, they thought maybe they had experimented, what should they do, and apparently the polygraph recorded the uncertainty and the hesitancy. And my experiences were the same as the Chairperson's, that they seem like very fine people. And in the explanation you gave, you talk about redemption, which is fine. But the experience -- or the example you gave was the example of somebody admitting that he or she had done so. But would your answer be the same to the person who denied it saying on the kind of factual basis I had raised? COMMISSIONER TIMONEY: Yeah. I mean, I raised that very issue myself and so our 286 11/30/98 - WHOLE - BILL NO. 980796 Background Investigations Unit will take that into consideration. So, for example, this young man or woman has made out the -- there is a huge long application process where those questions come up. They've now changed the policy. When they come in -- you made it out three or four or five months ago, and I say, Okay, listen, Mr. Cohen, you have an application here. I understand you made it out three or four or five months ago, is there anything you have second thoughts on and is there something you would like to change before we hook you up, before we go over this? And if you want to change it, that's fine, do not worry about it. And so we encourage them. And the idea is to encourage them to tell the truth. And then to tell the truth, not to punish them. So, fine, we now go back over, you would, like -- you let your investigating officer know you made the changes accordingly. And then assuming that it is just one of those kinds of like sort of an innocuous situation of recreational use, I suppose, for 287 11/30/98 - WHOLE - BILL NO. 980796 example, as opposed to, for example, sale, you shouldn't have problems. So the taking -- the one thing I am trying to get to a lot of these systems, the systems are very important, but you also need a little bit of common sense and understanding. And so I am trying to do that.
Well, I appreciate your comment. But the problem has been that there didn't seem to be common sense. COMMISSIONER TIMONEY: I know. I am trying to change that. But you can't hold me up to past practices. What you can hold me up to is present practice. And I am just telling you what the present practice is. The matrix has been changed, the whole issue that, if you now change your mind, three or four months later with regard to the application you have made three or four months ago, that will automatically -- no, it won't. It means we will sit down and discuss it, and you now can go back and make the changes without being thrown at the door and rejected.
I will wait with great interest to see what happens. But I think that has been a very serious block toward 288 11/30/98 - WHOLE - BILL NO. 980796 recruiting in minority communities, in particular, but in all communities. But this is a problem that seems upon -- it was somewhat not part of the minority community, but generally the problems seem to arise in large numbers in the minority community. But we will wait to see. Incidentally, would people that have been turned down before, will they be eligible if they meet the other standards? COMMISSIONER TIMONEY: No. Because, I again, I am not going to go back and correct every mistake or procedure mistake in the past. There is a process in place. Take the exam over again and start the new process. Pretty simple.
Now, you talked about the fact that not a significant number of people -- I think you used that word. But typically not a lot of people would come from outside of the city anyway, that that problem is overestimated. Given the fact that in your mind the likelihood of three additional classes of each averaging about 100, could you give us in terms 289 11/30/98 - WHOLE - BILL NO. 980796 of number what would you mean by "not a significant number"? Would it be five? Would it be 100 would not be significant out of 300? I don't have any idea what you -- COMMISSIONER TIMONEY: Well, my sense is that those next three classes are spoken for anyway. I don't think it applies to the next three classes. We're talking -- my sense is we are talking about the future here. You know, maybe the third class. I have no idea. The only experience I have in this area is up in New York when we recruited on the military bases. We got a lot -- we got -- we got candidates, good, qualified candidates that took the exam. We administered the exam on the bases. Did we get the candidates I thought we were getting? Probably not. My sense is that the same will apply here. There are not hundreds and thousands of people waiting to come take this exam. If there was, there would not be a hiring crisis in policing. And I know you are very skeptical. I'm sure you said last time, and I'm sure I haven't convinced you that there is, in fact, a 290 11/30/98 - WHOLE - BILL NO. 980796 national hiring crisis in policing. But there is. And if there weren't, people would be flooding by the thousands to Philadelphia or for that matter, to places that are that are easy, places like New York. But they, too, are suffering from this hiring crisis.
Would you have any objection to a specific limitations such as no 10 more than percent of those recruited within any given year shall be from outside the city. COMMISSIONER TIMONEY: I just -- no. 13 I think artificial numbers like that are just -- no. I would be against it. I am not looking to create artificial numbers. I am not looking to create another bureaucracy to overlook, to make sure it is not 11 percent and it is only 10 percent and then there is a group from military bases saying, Hey, listen, you know, there's 9 percent here, where is the other percent? 21 I think it should just be opened up 22 and allow us to go recruit on the military 23 bases. And just my sense, just my sense is that 24 you are not going to get thousands of people 25 rushing in. It is just not going to happen. 291 1 11/30/98 - WHOLE - BILL NO. 980796
You indicated in New York that there was a limitation to hiring outsiders to surrounding counties? COMMISSIONER TIMONEY: No. 6
No? COMMISSIONER TIMONEY: There was no 8 limitation in New York whatsoever as far as recruitment. You could recruit -- so long as you meet the basic qualifications, and you're a U.S. Citizen and now -- now it is two years of college. Whatever the basic qualifications were laid out by the Civil Service Commission in New York, once you meet them, anyone can take the exam. What you specifically -- what you referenced is the residency requirement to be a New York City police officer. You just reside within the five burros of New York City or the six surrounding -- and not even adjoining -- six surrounding residential county: those are Suffolk, Orange, Westchester, Putnam -- a huge, huge area.
Are you saying there was a limitation or not a limitation? 292 11/30/98 - WHOLE - BILL NO. 980796 COMMISSIONER TIMONEY: No, there's a limitation. In other words, you could be a New York City --
After you were hired you could continue to live -- COMMISSIONER TIMONEY: Yes, sir.
-- in any of those surrounding areas? COMMISSIONER TIMONEY: Yes, sir. In other words, you could actually come in from Washington, D.C., take the job, be sworn in tomorrow as a New York City police officer, and take up residence as far as north as 85 miles outside the city.
What is the greatest mystery to me of this legislation is the fact that you, of course, do not need legislation from City Council to bring about the change you are talking about. Are you familiar with that? COMMISSIONER TIMONEY: Well, I am familiar with the -- I am not familiar with what's on your mind. I am familiar with the regulation which says, you can take an exam and be a resident anywhere in the United States, however, you must be 293 11/30/98 - WHOLE - BILL NO. 980796 a resident in the City of Philadelphia for one full year prior to being appointed. I didn't mention today, and maybe I should have read my speech -- but I get bored reading the same thing over and over again. I read it a month and a half ago. The problem in that regard is self-evident. If I was a young man living in Washington, D.C. or Baltimore Maryland and I took -- I come down on a Saturday and took the Philadelphia police exam and now I realized I was going to be sworn in next December 1st and so I moved in to Philadelphia tomorrow to establish the one-year residency requirement prior to my swearing in, I mean, who do you think is going to hire me realistically? Who do you think is going to invest in me with regards to training and personal improvement when they know next year, December 1st, Timoney is out of here, he is going to the Philadelphia Police Department? I mean, look, I don't decorate way hard work or manual labor, but you would be left with jobs that may not pay enough and may not be personally fulfilling. 294 11/30/98 - WHOLE - BILL NO. 980796
Well, I had specific reference to the City's own known charter. COMMISSIONER TIMONEY: Enlighten me, sir.
Do you know there is a provision, Section 7-401 Subparagraph U that says: "Such residents' qualifications --" referring to residents' qualification set forth by City Council "-- for employees in the Civil Service as the Council may from time to time require but the Civil Service Commission may, upon the request to the personnel director, waive such requirements whenever in its description the circumstances warrant such waiver." Now, as I gather, this bill is an administration request. And I am puzzled why the administration -- I will eliminate -- I assumed it was an administration request. But let's say it's not. But why would we go to legislation?
Why don't we get a 295 11/30/98 - WHOLE - BILL NO. 980796 point of order from Councilman Kenney who wants to clear this?
Thank you. This bill was introduced by me. I mean, I thought about this bill, I looked into it, decided from my perspective as an elected representative and as an at-large member of being elected in every neighborhood in the city that this was a good thing for the police department to do. I had no prior discussions with Commissioner Timoney, no prior discussions with the mayor. And I'm sure you don't either when you introduce your own legislation, get clearance there with the mayor. This is a bill generated by me. I talked to Councilman DiCicco, Councilman Krajewski, they agreed to be the cosponsors if any other piece of legislation goes through this pot. It does not imply in any way that the mayor either wants it or doesn't want it, or the police commissioner wants it or doesn't want it. I think I have a opportunity and a right as an elected member of this body and this legislation -- 296 11/30/98 - WHOLE - BILL NO. 980796
Of course you do. And nothing that was said was intended to indicate you didn't. What I don't understand is why the commissioner is in support of this bill, why doesn't he go through the provision that exists in the charter that would not require city council legislation. The Civil Service Commission, upon the request of the personnel director has the full power to waive the requirement of any residency set forth in the council ordinance.
I said by the commissioner's support, so he would not be in support of this if he had cleared this with the mayor. I am assuming, and I may be wrong even as to that. But I am saying why wouldn't you use the provision in the charter, because that could be done without any legislative action.
If I may, I am Karen Simmons for the police department. The provision of the section that you are referring to, I think the person to speak on this -- this is not something that the commissioner, the police commissioner, can 297 11/30/98 - WHOLE - BILL NO. 980796 go to Civil Service and do, it is something that Linda Sadel (ph), our personnel officer, would have that ability. And I think she would be the person to direct your issue. But just specifically to Section 7-401 of the charter, you must look at that in conjunction with the Civil Service Legislation. One does not preempt the other. And once you look at the both of them together, one talks about the post-employment, one address pre-employment. But I think there are specific issues, ones that would have to be addressed with the personnel officer. I wouldn't want to speak on her behalf knowing what the issue is, what the specific provision calls for.
Madam Chair, I would be happy to make it much simpler. I want to see this happen. If it happens by Civil Service Commission or if it happens by this legislation, in my mind, in my book, the ship is not important just as long as it happens. If we can come up with a legal opinion that says the Civil Service Commission can do this next week, I will withdraw the bill. I want to see the effects of this 298 11/30/98 - WHOLE - BILL NO. 980796 legislation, not necessarily my bill being passed. As with a lot of things I've introduced in this body, it seems it takes a year or so and then we get around to do it. I will withdraw it now if the Civil Service Commission passes it, and we will go on. I have no problem with that for the record.
And I appreciate the fact that the commissioner is in Philadelphia only recently, and he has been very busy on many things and wouldn't have had the opportunity. But I certainly would like to recommend that for your consideration and for the consideration of the administration, there is a provision that does not require City Council and Civil Service Commission can fill in whatever gaps have been found and have regulations and making it all applicable.
Councilman Cohen, will you yield to a point of information?
If I can just ask based on your statement and on the statement of 299 11/30/98 - WHOLE - BILL NO. 980796 Councilman Kenny, if we can ask the police department's legal counsel on this issue and in this form to request the formal legal opinion on the issue raised by Councilman Cohen to lay out what the procedure is under apparently two alternatives to this. This same issue is raised in the Committee of Seventy report, again on where I was talking with Mr. Voigt. It says: "The Civil Service Commission is allowed to waive the requirement with cause so it is possible that the mayor can instruct the Commission to grant the mass waivers to certain class of applicants; for example, applicants who are minorities or those serve active duty in the military." So, Ms. Simmons, will you get us a full explanation and legal opinion on this particular issue?
This is a point of 300 11/30/98 - WHOLE - BILL NO. 980796 information on the councilman's point of information. If we can take that a little bit further, Ms. Simmons, when we do this, can we find out also the Councilman's bill here, once that happens, if it happens, is it good forever? That's what I want find out. This thing, if Ms. Sadel does something to help the Civil Service Commission, is that just for a certain amount of time? Do you get my point, council? So we may want to continue doing this with the Councilman's bill because --
This doesn't solve all of our woes if this is going to be a temporary thing. This may be something for him or the following police commissioners from now to eternity have to do. We may have to do this because we are always going to have a problem.
The councilman may change his mind, and the Civil Service Commission could also. So I think it is temporary in the sense that nothing we do as a legislative body or anything that any administrative body does is permanent. You know, it is as permanent as we all want it to be 301 11/30/98 - WHOLE - BILL NO. 980796 permanent, but there will be other people making decisions. I think the permanent temporary nature is the same in either process. And I would agree with Councilman Nutter; I would very much like to see that opinion. I just don't understand why we have to go through this legislative action when there is administrative action that could tailor much more than we could the procedure along the lines that the commissioner is talking. He would have full input. Thank you, Madam Chair.
Thank you, Madam Chair. I would assume -- I may be incorrect in assuming that from Councilmember Cohen's comments, the vehicle or change in this particular -- with regard to the service commission, he would be supporting that effort?
Well, we have to see what we do just as we have to sit here. But they certainly have the power and they don't have to come to us. 302 11/30/98 - WHOLE - BILL NO. 980796
Well, again, just let me state for the record the results of what happens, whether it is here or in the Civil Service Commission is what is important to me. Commissioner Timoney has come in here and has asked us to -- or at least supported what myself and some other Members of Council are trying to accomplish. He thinks it is important and he thinks he needs it. If the expeditious track for that is the Civil Service Commission, so be it. I will be happy to withdraw the bill. But I do think that we ought to make these changes and make them now. If we start trying to put this stuff on the back burner until we have an omnibus bill or omnibus strategy to go after this, it may take us another year or two years. In the meantime, we lose all of that opportunity to continue to improve not only the quality of our police force but the diversity of our police force. One of the reasons -- and this goes to Councilman Nutter's question directed at the Commissioner is, but I don't think he was able to answer, because I am the author of the bill, is I want to see our department continue to diversify, to 303 11/30/98 - WHOLE - BILL NO. 980796 attract more minorities, high-powered, good minorities who are willing to bring their families in the city. And that's the reason why I chose the military. The military has its problems and had its problems historically. But within recent years, recent decades, a lot of those problems have gone away. And maybe one of the only or one of the main opportunities in this country from minority and women and others to progress through the ranks of military. And that is why I chose the military, with an eye toward diversity and ability to bring qualified minority and non-minorty candidates to our city as future residents and taxpayers and future parents and everything else. So that is the reason why I chose the military. If there is some other way to do it, fine. If there is some other way to do it through the Civil Service Commission, fine. We won't have to beat our heads against the desk here every 30 days or so. Thank you.
Thank you, Madam 304 11/30/98 - WHOLE - BILL NO. 980796 Chair. In follow-up to Councilman Kenney, during the break we had about an hour or so ago, I had a conversation with a couple members of the F.O.P. who are in the galleys today. And I asked the question, did we ever recruit outside of the Philadelphia area or in specific or in particular any target groups in variables within the military. And with all due respect, Commissioner, you weren't around in the '70s in Philadelphia. Anyway, it is my understanding that we did do some recruitment with the military. The way I see this bill, there are two issues: one is recruitment of the target group and there is also the question of residency. But as it relates to the recruitment of the specific group and in this case the military, it is my understanding again that we did, in fact, do some outside recruitment during the '70s.
Do you know how they did that? 305 11/30/98 - WHOLE - BILL NO. 980796
It think Mr. Rocks is on the phone. He might be able to answer that better. I am trying to get his attention, Madam Chair.
Yeah, I believe so. Mr. Rocks? I believe what the issue was in the '70s, when there was a lot of unrest in many urban areas in the country, there was a need for additional police. And the federal government, the military, the U.S. Military was offering a six-month early out for military personnel if they would, in fact, get to be employed by a major city police department. However there was a residency requirement and there still is. So I am kind of like separating this bill into two different groups. So my point is, this is not really all that unique, from what my understanding is, in the '70s -- and I believe Mayor Rizzo was the 306 11/30/98 - WHOLE - BILL NO. 980796 mayor at the time. And having been a former police commissioner, it was acceptable to the commissioner then in the '70s that we do go to look at a specific group of people and in particular the military personnel because of their qualifications. And what our needs as a major city was at that time in relationship to the crime. I am trying to get Mr. Rocks' attention.
Mr. Rocks, would you please approach the witness table?
I think Mr. Rocks can address that a lot better than I can.
I would like to get one thing on the table while Mr. Rocks is coming. Councilman Kenney asked Councilman Cohen if based on his recommendation about Civil Service would he, in fact, be in favor if the Commission were to take action versus the legislation action. The Councilman artfully dodged the direct response to the question, which I appreciate. 307 11/30/98 - WHOLE - BILL NO. 980796 I do want to ask though for Councilman Kenney, if that is the route that is chosen, even though the Civil Service Commission may not be required to come to Council for anything under those circumstances, I would, at least, be interested -- and most other members, I am sure, would at the same time at least be interested in whatever it is that they come up with and that they would at least tell us about it or present it to us before, in fact, changing the regulations, even though they are not required. Do you have any problem with that?
Chair, again, it is the end result that is important. If a request is made from the Chair to the Civil Service Commissioner and they are willing to come in and explain what it is they were going to do 308 11/30/98 - WHOLE - BILL NO. 980796 from an informational standpoint, I would very happy of that, I would be very supportive of that, and I have no problem at all.
Madam Chair, Mr. Rocks is here, if you have any questions as to what the policy was in the late '60s and '70s.
Have you informed Mr. Rocks as to what the question was?
I mean, whether through Councilman or ultimately Mr. Rocks, I think the only question was --
Mr. Rocks, why don't you take the witness table, please?
How did they deal with the pre-residency issue for these military people in the '70s because of urban unrest?
In August of 1967, I went into the military. In the early part of 1968, I was a member of the 82nd Airborne Division. One 309 11/30/98 - WHOLE - BILL NO. 980796 of the things that we were doing is we were undertaking, along with combat training, civil defense training. We were trained in riot control. In April of '68 when Martin Luther King was tragically killed, I was a member of the 82nd Airborne Division. I moved into Washington, D.C. to assist the Washington, D.C. police Department as a member of the 82nd Airborne Division in the control of that riot condition. Subsequent to that, we had a whole bunch of combat arms trained solders. And when we all came back from the Republic of Vietnam, which I served with the 173rd Airborne Brigade, there was not much we could do. As a young man, I was torn between what do I do here? Do I stay in the service, stay in the bright and shining lie that was still going on -- although I didn't know it was a bright and shining lie at that time -- and risk going back there and doing what we did best, or to go to other things? And what the Government come up with was a six-month early out for any solder who was 310 11/30/98 - WHOLE - BILL NO. 980796 interested in going to any major city police department that bought into this. And they would grant them a six-month early out, if they were accepted into that employment and that police department. And there were cities all over the place. I was considering at that time going to several different cities regardless of what my home of record was, because my address at that time was Fort Bragg, North Carolina. But my home of record was the City of Philadelphia.
Did you come directly from the military to police employment?
When I got done, I got back to the City of Philadelphia, which was my home of record. And then I subsequently in 1971 became a police officer. I was in the military --
Excuse me, Mr. Rocks. The Chair recognizes Councilwoman 311 11/30/98 - WHOLE - BILL NO. 980796 Clark.
Thank you, Madam Chair. Mr. Rocks' testimony is not relevant because he fits the prior residency. So we need somebody who is from Podunct who took that early out and chose to come to Philadelphia or go to New York or some other major city.
I'm not sure whether it is qualified or not. Because I am still at the point of when you got out of the military --
-- did you immediately come a Philadelphia police officer or did you wait a year?
(Unintelligible.) -- based on your original residency here in the city?
-- in August of '70. And I became a Philadelphia police officer in April of '71. So I had a little more than eight months 312 11/30/98 - WHOLE - BILL NO. 980796 or nine months.
Basically his address never changed because of his military status.
I thought the requirement was you had to be a resident a year before you took the test.
But I thought the requirement was you had to be a resident a year before he took --
Right, by moving up here and going to school. So his experience, while interesting, is not relevant to prove the point that you can hire somebody from outside Philadelphia. It is interesting but not relevant.
Because you were saying he was always a resident? 313 11/30/98 - WHOLE - BILL NO. 980796
He was always a resident. And nothing he did changed his residency. I need someone who came from Podunct.
So is it that you are from Philadelphia and go into the military, get assigned to Hawaii, you can automatically come back --
Excuse me. Excuse me, please. I think if we got Linda Sadel up at the witness table, it may help to clarify this for us.
Just to finish his question, Madam Chair -- just to finish the question --
Your address doesn't change in the military unless you want to. If you vote here, you can stay here.
That's right. And that's the only point that I make. He never lost his Philadelphia status.
He could, if he wanted to. 314 11/30/98 - WHOLE - BILL NO. 980796
So you need someone who wasn't a resident of Philadelphia who came back here. Can anybody who do that?
It didn't -- what I suggested -- I said I separated the two issues. One is residence and one is targeting a certain group, because a lot of them in the discussion today dealt with why we need a military. Why is it -- I am using someone who was in the military at a time when the military was offering a six-month early out and cities weren't recruiting people who were taking advantage of that six-month early out. Mr. Rocks may be a poor example in so much as he was a Philadelphia resident and a nonresident. But I am speaking to the issue of the pool of people that we are looking to recruit to the Philadelphia Police Department.
No, but there 315 11/30/98 - WHOLE - BILL NO. 980796 has been a lot of discussion and controversy today -- unless I was hearing wrong -- why do we need to go to the military? What is so important about going to the military? Why are we trying to go to the group of people? All I am saying is we are not reinventing the wheel. It is something that has already been done in the past.
Will you please identify yourself for the record and share with us your experience on this matter?
My name is Linda Sadel and I am the Personnel Representative for the City of Philadelphia. And I think I do have some insight into the situation. Back in the mid '70s, the City of Philadelphia did recruit in the military. We recruited individuals whose residence of record was the City of Philadelphia. And at that period of time -- I mean, I know. The person who did that recruiting was a person who at some point later in his life became my husband. So I know from personal experience exactly what happened. And at that point in time, people -- several people from the personnel department went 316 11/30/98 - WHOLE - BILL NO. 980796 to selected military installations and did recruit military personnel who were from Philadelphia. What I also need. To let you know that it was an effort that, as I think the commissioner testified to earlier, did not bring large numbers of people in to Philadelphia, because, recruitment, whether it be recruitment in the military or it be recruitment at colleges --
Madam Chairwoman, point of information. I think the question is with respect to Ms. Sadel, did you recruit anybody for Philadelphia that wasn't in Philadelphia -- that their home of record wasn't Philadelphia? Did we do any of that in the '70s? Because I was in high school. I don't remember high school.
The question is can we do it? 317 11/30/98 - WHOLE - BILL NO. 980796
In terms of "can we do it," we can certainly today recruit people from the military whose residence of record is Philadelphia. With a residency waiver, we could also recruit military personnel whose residence of record is not Philadelphia.
(unintelligible) -- service commission that that's necessary -- (unintelligible.)
I'll restate it 318 11/30/98 - WHOLE - BILL NO. 980796 because I thought I heard you say it; is that correct?
Yes, that is my understanding. I have never asked for a formal legal opinion, but that is my understanding. We routinely request a resident waiver to enable the city, the City of Philadelphia, to go outside the city limits to recruit in those situations where we feel it is warranted.
Do you feel that this issue is warranted to go outside of the city? And if so, would you be willing to go before the Civil Service Commission and request waivers.
I am convinced that it is appropriate for the City of Philadelphia to recruit police personnel at military installations and that it would be appropriate to grant a residence waiver to accomplish that, yes.
And the waiver is for how long? Six months or... 319 11/30/98 - WHOLE - BILL NO. 980796
A waiver that wouldn't permit the City to recruit but require that appointees become residents of the City of Philadelphia and maintain residency in the City of Philadelphia.
Point of clarification. Is it true, Ms. Sadel that what would be waived is the one-year prior residency requirement, not the requirement to move in within six months of being hired?
You are saying you would give them six months to move into the city? Is that what you are saying?
Well, generally when I request and the Civil Service Commission approves a residence waiver, it is to waive the 12-month period prior to appointment and also the probationary period and also six months 320 11/30/98 - WHOLE - BILL NO. 980796 thereafter. The rationalization for that is because you could have somebody who lived in the suburbs, took a job, and for whatever reason the job didn't work out. And so you wouldn't require them to move in until it was certain that they were going to have the job on the permanent basis. In this particular situation, though, I think what we are talking about is recruiting in the military and people would have to re-establish residency some place, my recommendation would be that upon appointment that they be -- become residents of the City of Philadelphia.
If we would be recruiting from the military, to me it doesn't make any sense to have somebody move to this area and establish residency outside of the city for three or four months and then move in. If they are going to reestablish residency then I believe 321 11/30/98 - WHOLE - BILL NO. 980796 that they should establish residency within the City of Philadelphia at the time that they are appointed.
You're only removing the month requirement before you can 8 take the test. I am assuming even in the bill, 9 if we get back to the bill for a second, and I 10 don't know what your, the Councilman or the 11 commissioner's expectation was of the bill, I 12 have to assume that all you really wanted to get away from was the 12-month requirement. There is some period of time between the time when you take the test and then you get told that you are going to be hired and then you have come to the -- I actually -- you want the person on the ground here somewhere between the day that they are told that they have a job and when they start work, right?
At the time the person is appointed, I would assume that we would want them to be in the City of Philadelphia, yes.
Because sometime after the time they are appointed they have to 322 11/30/98 - WHOLE - BILL NO. 980796 start working, right?
I understand that. So that's why you make the requirement the moment you start the job you have to live here. What is the time period between the day you get notified of your appointment, either the little letter you get you passed the exam or you got one last thing to do, whenever, you know, you have it and the day you start working. COMMISSIONER TIMONEY: Just to be fair, although I would say from the day you are notified, 30 days. So if you are going to be notified you are going to be hired in ten days two weeks, fine, but 30 days to move into the city.
To move into the city. And they have to live in the city. Which then precludes you pretty much, or it makes no 323 11/30/98 - WHOLE - BILL NO. 980796 sense, as to why you -- you know, between the time you got notified you got the job, you moved to Bala Cynwyd and then all of a sudden you move into Philly. And I assume also, not that I have any experience, but military people, I mean, now we are talking about military people I mean, they get their orders to go wherever they go and usually they move somewhere else for a short period of time, right, and in this particular case, you know you have a job. So you move to the locale.
And if you are going to move to the locale, then we suggest you move to the City of Philadelphia.
Is that a point of order? The Chair recognizes Councilman Rizzo.
I read here it says in this legislation it's six months after appointment to the police department to establish bone fide residence in the city and shall, thereafter, maintain bone fide residence in the 324 11/30/98 - WHOLE - BILL NO. 980796 City of Philadelphia.
I understand that that is the language that is in the bill and that is what is before Council. I understand that. But I also believe that if we are -- if people are going to reestablish residence, then they should as quickly as possible come into the City of Philadelphia.
May I continue just for another order of that. With the exception of waivers that presently stand, there are some waivers at the airport that people, from what I understand, have been given two years to move into the city? There are people that have been given two years?
That does not sound right to me. I will be happy to have that researched for you. But waivers that the Civil Service Commission have been granted, for as long as I can remember, have been for the six-month probationary period and six months thereafter. There are a very, very few cases where there are individuals that have residence waivers, and occasionally we see a specific waiver for an 325 11/30/98 - WHOLE - BILL NO. 980796 individual because there is some very weak situation. But waivers that are granted for recruitment purposes are always granted for -- to waive the months prior to appointment, the 7 six-month probationary period and then six months 8 thereafter. 9
And the airport is 10 a good example because of the specialty operation 11 there. Waivers are most frequent at the airport 12 than most other city or other outside agencies.
I don't think that that is necessarily the case. But I will be happy to research that for you.
Just so we are clear on the issues that you brought to the table, if a military person is born and raised in Philadelphia, and he is in the military and is assigned whenever they are assigned halfway around the world, unless they formerly change their residency to that location, then for our purposes, they always maintain the Philadelphia 326 11/30/98 - WHOLE - BILL NO. 980796 residency; is that correct?
And do you know whether or not we actively pursue military people who maintain Philadelphia residency presently for the police department?
And the person who is not from Philadelphia and never lived here is never able to establish residency or get around to the pre-employment 12-month residency requirement because they are not from here? They can never establish residency because they were never here, and unless they come here and wait for a year they can never establish residency and be hired directly out of the military.
Not without -- not unless we would grant a waiver to permit them to do otherwise. 327 11/30/98 - WHOLE - BILL NO. 980796
Just advance to the a number of questions. I would say that the person from Oklahoma who served in the armed forces and lived in Philadelphia while he served in the armed forces even in New Jersey, Fort Dix, or somewhere else did have the opportunity to establish a residence. A person in the military forces is not compelled to keep a residence. That person carries it unless he or she makes a decision to change it. So somebody could, while in the service, develop a Philadelphia residence as I believe the first witness testified today he did.
Someone who is not originally from here, got assigned here, established residency here, they could immediately be hired, because they automatically qualify even though they were not an original 328 11/30/98 - WHOLE - BILL NO. 980796 Philadelphia resident.
We hope probably the Eagles's performance yesterday, somebody came here today having new hope and they said they were ready to live in Philadelphia and adopt their residency here immediately; that could happen in the military service. It would have that right. COMMISSIONER TIMONEY: Let's just hope they have the psychological experience.
This is going -- we are going around in here. I think of we ought to conclude this, please. Councilman Kenney.
I just want to make a suggestion as the sponsor of the bill. If we could, I mean to end this torture, if we could at the approval of the chair and the agreement of the Members of Council present, we could ask the police commissioner and the personnel director to go to the administration, try to develop some suggestions or requests for Civil Service Commission approval to get us where we want to be, we could end this. 329 11/30/98 - WHOLE - BILL NO. 980796
I would like to include Councilman Nutter's suggestion that the Council would like to hear from the Civil Service Commission.
We have "what-iffed" this to death which is what is happening now. And if that's the case, I know there are one or two more witnesses to testify who have been waiting here since 9 o'clock this morning before we got here to conclude this.
I do. I am intrigued by the indefinite waiver. So your briefest definition of what an indefinite waiver is and the circumstances under which we would grant them and how often we've done it would satisfy my curiosity.
Councilwoman, I would be very happy to provide you with a list of all of the outstanding Indefinite Residence Waiver. There are very few of them. There are several witnesses for medical personnel in the health department, and there are also several that go 330 11/30/98 - WHOLE - BILL NO. 980796 back to the early to mid '80s that were, I guess, put in place at a time or -- I guess were not put in place but were permitted to remain at a time during the mid '80s when the city cracked down on Indefinite Residence Waivers. And at that point in time, the City basically said anybody who had an indefinite waiver had to move in with the exception of a few people who were grandfathered. And there were only a handful of those people left, and we can easily provide you with that list.
Thank you, Madam Chairwoman. Commissioner, I am sorry to beat this to death, but I have my thing on here, I have to answer my question. I have a second report from the Integrity and Accountability Office from September of '91. First of all, let me say I support the legislation, but I don't think this is the end of it. And I think I heard you say this probably isn't going to satisfy all of your 331 11/30/98 - WHOLE - BILL NO. 980796 recruitment needs; am I correct in assuming? COMMISSIONER TIMONEY: In other words, there are lots of changes that are being made regarding the entire Philadelphia Police Department including its efforts towards recruitment, background investigations, a whole host of things. This is just one.
Thank you. Thank you. And let me just take these two things. On this goes into what I just said. I don't think this is the wherewithal end of this. On , Table 6, it has: Dismissals from the Philadelphia Police Department from 1987 to 1997 by number of years on the force. I don't expect you to have this on you, but basically what it says is people with six to ten years of experience, there were 65 dismissals; less than one year to five years 161 dismissals. It goes down to 31 to 35 years and there is one dismissal. So the longer you are there, the less dismissals? COMMISSIONER TIMONEY: Actually, that's the natural order of things, it makes 332 11/30/98 - WHOLE - BILL NO. 980796 sense. The longer you are on, the longer you are going to stay on.
Because people are not going to be on for more than years -- 6 COMMISSIONER TIMONEY: No, but -- 7 just as you heard you, get rid of more. I 8 wouldn't read anything into it. 9
That's what I'm 10 reading into it. What I want to see is, 11 obviously the recruitment procedures that we 12 have, have to be broken, or we wouldn't need to 13 be going out to other parts of the military, to 14 recruit people. 15 Again, I don't think that ends it, 16 because that's the beginning. Maybe we need to 17 do overall recruitment all over the country. 18 What I am reading into this actuary 19 study, it says that we have problems with 20 recruiting. Okay? I just want to touch one more thing. This is the only other chance I can get here. On , we talked about the polygraph test. And there is a case study of a polygraph test, and you probably read it. But 333 11/30/98 - WHOLE - BILL NO. 980796 basically here is what I got -- four or five or six different tries and he gets appointed. Now, one of the things that amazes me since I have been in City Council since January of 1996 is the difference between policemen and firemen. Cops are always coming. I probably -- there's more policeman. And a lot of the problems happen to active policemen's sons who can't get past this polygraph test. I talked to Ms. Sadel about this before, on the record and off the record. Is this polygraph test totally, totally something that we shouldn't be doing? COMMISSIONER TIMONEY: No. I think you are wrong. I spoke earlier, I really am completely open to keeping it, an I am also very open to doing away with it or using it in certain circumstances. I have gotten an A on my final. But I have -- like everyone else, I have some problems, slash, reservations regarding the polygraph. There seems to be just too many notorious cases and words -- it seems to be 334 11/30/98 - WHOLE - BILL NO. 980796 inexplicable. Some, by the way, I have looked up and checked. And there was a pretty good explanation for them. But still, part of this whole process we talked about earlier about improving the image of the department, also improving the confidence that people have in the department. And when you start to see stories like you just pointed to there, where some people fail it four or five times and then get hired, all of that contributes to the lack of faith or confidence in the police department, which has a negative impact on our ability to recruit or attract good, qualified candidates.
Just one last question. A lot of my colleagues are concerned that if we pass something like this, that there will be problems with our constituents. And there may be a lot of people who want to be policemen. Now, as another person who came from another town -- and your credentials are certainly okay with me as far as being a Police 335 11/30/98 - WHOLE - BILL NO. 980796 Commissioner -- COMMISSIONER TIMONEY: That's quite an endorsement. Okay.
But I don't doubt you when say you talk about recruitment, but this is just one little piece that we are trying to do. But realize, to sum this all up, if we let you do this one thing here, are we or are we not shutting out my constituent and Councilwoman Blackwell's constituents, the ones who want to be policemen? Are they going to be able to be policemen who pass everything? The ones we are concerned about are the ones that live in our city and our district. COMMISSIONER TIMONEY: I mean, I don't --
I don't -- COMMISSIONER TIMONEY: I don't have a perfect answer to that. All I can tell you is that if I go into the military bases, we are not going to be flooded with thousands of people. And my sense is, if we extended it outside the military base, we are not going to get thousands of people. But that has not been the experience 336 11/30/98 - WHOLE - BILL NO. 980796 of practice elsewhere. So why, all of a sudden, would people be flocking to Philadelphia? I understand the concern and the worry. My sense is, it may not be justified. But I am not going to be able to convince people of that. And I think there is a book of this, wasn't there, Profiles on Courage?
I concur with the commissioner. I think that this is a step in the right direction. But I don't think that we are going to have thousands and thousands of military people who want to come to Philadelphia. There is just no reason to think that is the case.
Thank you. Are there any other questions from Members of the Committee? I believe our next witness was a Rich Costello. Is he in the room? Thank you Commissioner, Timoney. COMMISSIONER TIMONEY: Thank you, madam.
Jim Jordan. Is 337 11/30/98 - WHOLE - BILL NO. 980796 Jim Jordan here? John White?
Thank you, Madam Chair. As a result of my sponsorship of this bill, I was contacted John F. White, the former head of the Philadelphia Housing Authority, who intended the come here today to testify, who was unable to stay. And I have his testimony and I would like to read one section of it. "The United States Military is recognized for the quality of training in the motivation of its members. They are all volunteers, who chosen to serve their country in the most honorable fashion. They have experienced discipline and understanding its importance in ensuring the successful completion of the tasks they are assigned. They are highly in the skilled in their 338 11/30/98 - WHOLE - BILL NO. 980796 specialties and are used to hard work. "These are the kind of people this city needs to attract not only as employees but also as residents and taxpayers. We need to make it easy for them to find work in Philadelphia. And this bill does that." Thank you Madam Chair.
Thank you. Good afternoon, Mr. Jordan, and thank you for your patience.
Kindly identify yourself for the record, and proceed with your testimony.
James Jordon. I am the Integrity and Accountability Officer for the Philadelphia Police Department. Thank you for allowing me to testify here today. Madam Chair, the Integrity and Accountability Office of the Police Department was created in 1996 as part of the settlement of litigation arising out of the indictment mixed with several officers in the 39th Police District for 339 11/30/98 - WHOLE - BILL NO. 980796 corruption and misconduct. Our job is to audit police operations and make recommendations to enhance public confidence in the department by minimizing the likelihood of police corruption and misconduct. In September of 1998, my colleague, Ellen Ceisler, and I issued a report describing deficiency in the recruitment and hiring practices of the Philadelphia Police Department and the consequences of those deficiencies. The evidence analyzed, which included numerous internal affairs investigation of serious police misconduct as well as background investigations and related personnel records raised for us a quote from our report: "A fundamental question as to the integrity of individuals being recruited on to the Philadelphia police force." Among our recommendations are modifications of the residency requirements to allow the department to recruit from the ranks of the military. The problem the police department faces in recruiting the best possible candidates are complex and there are no simple guaranteed 340 11/30/98 - WHOLE - BILL NO. 980796 solutions. Commissioner Timoney has already taken steps to correct some of the problems we identified in our report. He has testified before you regarding these problems and how this bill would assist the department in further strengthening its commitment to quality by permitting the hiring of men and women who have proven by their military service that they possess the qualities we are looking for as police officers and citizens. In our society, police officers are given special powers, assume special responsibilities, and are subject to special pressures. The newest rookie in the department has the authority to limit a citizen's freedom and to use physical force, powers denied not only to all other municipal employees, but even to the most senior elected officials in our government. We owe it to the people of Philadelphia to do all we can to ensure that recruits to the police department possess the training, maturity and judgment needed to do the job of policing. This bill would help meet that goal. Thank you, Madam Chair. Are there any questions? 341 11/30/98 - WHOLE - BILL NO. 980796
Thank you. Are there any questions from Members of the Committee? Thank you very much. Mr. Will Gonzales, who I understand has been waiting here since o'clock this morning to 7 testify. 8 (Councilwoman Clark takes the chair.) 9
Good afternoon. Please introduce yourself for the stenographer.
Can I have copies of my testimony? I wish to see it. My name is Will Gonzales, and I am the Executive Director of the Police - Barrio Relations Project. The Barrio Project is a community-based, nonprofit civil rights organization that works to improve relations between the Latino Community and the police by addressing police misconduct and improving the delivery of public safety services to the barrios of Philadelphia. We support the spirit of Bill No. S. Military personnel. We respectfully urge you to amend the bill so that the best men and 342 11/30/98 - WHOLE - BILL NO. 980796 women not living within city limits, regardless of military background, can also apply to serve Philadelphia as law enforcement officers and move into the city within six months of their appointment to the force. The bill's focus on military training over all other vocational and educational experiences excludes valuable candidates from applying to the Philadelphia Police Department. Nonresident men and women working as police officers in other jurisdictions, college students and employees of Federal and State agencies are but a few examples of the people excluded by the bill in its current form. Amending the bill to give all nonresidents in good standing the opportunity to apply to the police department is preferable to creating a list of eligible exclusions to the residency requirement. We must give the police department the widest latitude possible in assembling its pool of candidates. The bill's focus on military training is also very worrisome. While we respect and appreciate all of the work and sacrifices made by 343 11/30/98 - WHOLE - BILL NO. 980796 military personnel to safeguard our country, we point out that the training necessary to carry out such a vital national duty does not necessarily equate with the skills and mind set of policing a diverse metropolis like Philadelphia. The objective of military training is to forge solders for bloody combat in open warfare. The mission of police officers, on the other hand, is to provide highest degree of public safety to the community with the highest respect for its civil rights. Police are the emergency service technicians of the law. They must make weighty, split-second decisions about the Constitution as well as have the brave composure to make the use of force the last alternative in their arsenal of persuasion. The bill should open the door to recruiting the best public servants for the city, not necessarily the best public warriors. There are many people outside of the military with the skills and the heart to take on the challenges of policing in our democratic society. I close my testimony with a call to City 344 11/30/98 - WHOLE - BILL NO. 980796 Council to go beyond the considerations of the bill 3 and look at other ways that the police department can maximize its chances to attract the best and brightest to its force. To begin, council must help the police department address the serious deficiencies of its recruitment unit. Those deficiencies are outlined very well in the second report of the police department's integrity and accountability officer. " The benefits of the bill will be limited if the recruitment unit is not operating at its best. Part of doing its best includes ensuring that the department is provided with a diverse pool of applicants so that our police force reflects the diversity of the community it serves. Council must also work to maximize the pay of police officers and improve the facilities in which they work. 345 11/30/98 - WHOLE - BILL NO. 980796 Last but not least, council must help the department address issues of police accountability. We must do everything possible to address and prevent police misconduct and corruption. The act of miscreant officers tarnishes the reputation of all police. This, in turn, leads to poor community police relations and to negative feelings towards police and law enforcement as a profession.
Thank you for giving me the opportunity the express the concerns about a very important issue.
Just a couple of questions. Your statement quotes from Mr. Jordan's statement about the problems of recruitment in the police department. What do you think would happen if the current municipal cleared up? Would that increase the number of local people that could be recruited from the police department?
Yes. But at the same 346 11/30/98 - WHOLE - BILL NO. 980796 time, that does not take away the need to give the police department the widest pool of people to choose from. I think there is some serious problems in the department. I mean, if you look in the year take away the issues of police corruption and misconduct, the whole issue of counting crime correctly, and there is a history and a culture that the current leadership is trying to improve, you know, to change. And I think that the need to have a wider pool of people to select to serve on these, I call them emergency service technicians of the law, is important. So not only do we need to improve those counts in the recruitment unit but also give the widest pool of applicants to choose from.
Well, I can't build something. My skills don't include building a whole project that I would have to do brick by brick. So that if we improve recruitment, we would improve somewhat the situation, maybe not solve everything, but the current situation would be somewhat improved, right?
Yeah. But the problems 347 11/30/98 - WHOLE - BILL NO. 980796 are so deep. I mean, you have to take a holistic approach to this issue. And that's why my testimony -- not only do I talk about the recruitment unit, I talk about increasing pay for the police officers, I talk about improving the facilities and I talk about addressing issues of corruption.
Those questions are all important. But I am trying to deal specifically with the problem. The commissioner made clear that the present bill would not expect to recruit a very large number of people; that it would be a relatively small number of people, I gathered, he believed would come from adoption of the bill. We could maybe increase the number, line up in the amendments you suggest. But one way you could also do it is maybe not doing it at all, but do some of it by doing the recruiting process.
Right. Yes. So that's 348 11/30/98 - WHOLE - BILL NO. 980796 why --
I mean, you're a lawyer and I am a lawyer. And I would like to ask you questions, get answers. And then you will have full opportunity to say everything you wanted to say. All right? Now, too, I noticed in your statement that you talk about the Barrio Project is a community-based, nonprofit, civil rights organization that works to improve relations between the Latino community and the police. So can you tell us -- do you have any idea of how many members the Latino Community are currently in the Armed Services from Philadelphia, that is?
No, I don't know the current number. What I know is in a historical trend of increase of Latinos in the Armed Services. Latinos have served in the Armed Services ever since the establishment of the --
Well, if the recruitment process was improved so that there was specific efforts to recruit members of the Latino 349 11/30/98 - WHOLE - BILL NO. 980796 Community -- I refer to that community because of your reference to working closely with it. If the recruitment went toward, in the military service just as the personnel director indicated we used to do, go out to the military bases and try to get Philadelphians in, would that provide additional folks for the police force, you believe?
Yes. Because there is a serious problem in our community with the whole system of education. 70 percent of our young people do not graduate from high school. So by widening the pool -- and I don't want to keep fixated on the military. I want to open it up to colleges and other places.
I understand that it is not just about the military. You are just saying support this, let's not try to recruit Latinos who are in the military?
Let's build another brick then, a second brick. I now have two bricks: improving recruitment; two, the City going out into 350 11/30/98 - WHOLE - BILL NO. 980796 the military installations and trying to recruit among Philadelphians, whether they are the minority or majority, whatever, but to recruit Philadelphians, that would increase some -- Do you think they would be helpful steps no matter what else happens?
All right. That I want to use again, because it seems to be I see them as the first and immediate steps in planning a campaign to reach everybody is a much difficult campaign to develop and organize. But these are things that you can do very quickly that improve appointment and procedures and can also immediately go out and make it known to all Philadelphians who are in the Armed Forces that were making special offers to bring them in. And at least one major objective that I've always had in mind was to make sure people come in and have some urban experience. And this would be sure they have urban experience.
What I say is -- our statements are prefab. Our statement are with the hope that we can address the bricks that you've 351 11/30/98 - WHOLE - BILL NO. 980796 mentioned, but also to be able to reach into other piles of bricks so we can continue to a strong -- build a strong police department which we need.
Well, the general feeling in Philadelphia is today that taking away cases of corruption or others which we all believe represent only a tiny minority of case of brutality, a tiny minority of police officers, moving those aside, we have an excellent police officers in Philadelphia. With all of the weaknesses that still exist -- now, I have a little difficulty in saying somehow, with the residential restrictions that we've had in place, we've developed an excellent police force, and then arguing at the same time that well, we have to bring in all kinds of recruits from everywhere else to, what, maintain, to improve how the police force operates? I have difficulty with that argument. Now, in response to that, the field is yours.
With all due respect to your statements, many fine police officers risk their lives every day. I still think that there are 352 11/30/98 - WHOLE - BILL NO. 980796 inherent problems that needs serious thinking outside of the box between the police department. And it is not only the police department's problem, it is our city's problem. You have to think that, you know, here -- we were asking businesses to donate money to buy vital pieces of equipment with police officers. We were not backing the officers, going out and buying the bullet proof vests ourselves. And to me, it is kind of disgusting that we have to go out there asking businesses to buy bullet proof vests. So I don't want to keep it to just the officers who are out there on the street, but the whole administration, the whole city and citizens who live in it, you know, how to fault and why we don't have the best police department possible. In terms of priority, I think the rate of pay is a very important problem that we need to prioritize that so that would also increase another one of your important bricks, to build a police department that everyone wants and needs. So, you know, I think there is a long way to go --
And the police 353 11/30/98 - WHOLE - BILL NO. 980796 facilities are terrible.
Horrible. IAD, Internal Affairs Division, was currently in a building that should be condemned. So it is not, again, to be negative towards those who are working on a very difficult situation, but that there is an obvious need for improvement. And like using your references of building something brick by brick, we need to have access to all of the bricks, not just your traditional bricks.
Thank you very much. Are there any over questions from Members of the Committee of this witness? Is there anyone else to testify on this bill? Say none. Our next bill for consideration is Bill 354 11/30/98 - WHOLE - BILL NO. 980789 No. 980789. I would ask Mr. McPherson (ph) to read the title of the bill.
An ordinance authorizing the City of Philadelphia to provide for an Alternative Funding Mechanism for a portion of the unfunded actuarial accrued liability of the City of Philadelphia Retirement System pursuant to the Municipal Pension Plan Funding Standard and Recovery Act.
Councilwoman, I am Ben Hayllar, Director of Finance. With me is Tom Queenan, City Treasurer; Joe Herkness, Executive Directive of the Board of Pensions, Sandra Parker, Chief Investment Officer for the Pension Fund and Joe Vignola, the Executive Director of Pennsylvania Intergovernmental Cooperation Authority. We are here to speak in favor of Bill 19 980789. Councilwoman, in deference to the hour and if it does not erode our position of support, I would like to summarize my written testimony, which you have received.
Have we received it? 355 11/30/98 - WHOLE - BILL NO. 980789
Does everybody have a copy of the testimony? All right, Mr. Hayllar.
Thank you. Let me also acknowledge that four employee members of the pension board have been here throughout the day. Currently Charles Johnson and Carol Stooks (ph) are still with us. John Riley and Shareena (unintelligible) were also here during most of the day. 7 billion unfunded liability that we have in our pension. The pension funds should have enough assets to pay for benefits solely for the earnings of the fund. Historically the City did not fund its pension, invested in low-earning banks, certificates of deposits, and increased benefits without increasing payments to the client. 7 billion but has only $3 billion in it. State law now requires that the City 356 11/30/98 - WHOLE - BILL NO. 980789 reduce this unfunded liability. Of the $247 million payment we made this year, $193 million of that payment was to reduce the unfunded liability. And as required by State law, our payments to the pension fund will increase every year until the year 2019. And on of my testimony is a graph charting what our required payments will be. Obviously, we will have a growing payment to the pension fund that has created a problem in the eyes of the rating agencies and PICA. The rating agencies and PICA have repeatedly called the unfunded pension liability a major problem to our financial future. Standard & Poor's has raised this. But also just last week in a confirmation of our rating pointed out that the City's plan to issue pension obligation bonds would be a major improvement in our fiscal future. I also would point out that Fitch on November 13th, another of the agencies, states that the pension obligation bonds that we are contemplating selling will not only lower the annual funding cost but will level the annual cost compared 357 11/30/98 - WHOLE - BILL NO. 980789 with a rising contribution schedule under the current amortization schedule. The pension obligation issue will allow the pension fund to maintain larger portions of its investments and longer term investments while still maintaining enough short-term cash to meet our regular payments. The plan will improve the City's general fund and cash flow. Rating agencies of PICA have viewed pension obligation bonds as a way of transferring the liability to the pension fund to a liability upon owners avoiding ever increasing payments. The Commonwealth of Pennsylvania has also improved the use of pension obligation bonds and recently amended the municipal pension systems law for the City to allow us to use the Philadelphia Authority for Industrial Development and also to makes certain that pension obligation bonds would not count toward our constitutional debt ceiling. We would point out that this is an extremely attractive time to issue these bonds because we have historically low interest rates. This is one of the reasons we are anxious for 358 11/30/98 - WHOLE - BILL NO. 980789 Council's approval, so we can get into the market. 75 percent. The pension obligation bonds providing one and a quarter billion dollars will improve pension fund investment returns. The money will be putting in the same asset allocation plan that is currently employed with one exception: The only change that we would make is that the current asset allocation strategy is to set up a separate fund approximately $100 million that would mirror the current asset allocation plan but would be managed by small firms that are currently unable, because of their size or recent -- because of their lack of a track records, they are unable to do business with the City. The City Pension Fund will not allow its assets to be more than percent of the manager's 20 funds under management. 21 That means newer and smaller funds can 22 not handle the large allocations required in the 23 Philadelphia Pension Fund. This $100 million fund 24 will allow smaller managers, newer managers, 25 particularly Philadelphia firms who are unable to do 359 11/30/98 - WHOLE - BILL NO.
980789 business with us and minority women in firms who are able to participate more in the Philadelphia Pension Fund. The pension funds have been issued by many municipalities across the country. Most recently in Pennsylvania, Pittsburg, Allentown, Easton, Lancaster have issued pension obligation bonds to fill their unfunded liability. Now, there is one risk in pension bonds: If over the 30-year life of the bonds the pension fund earns less than the true interest cost on the bonds, the City would arguably pay more than if no bonds had been issued. We believe that this risk is extremely small. 6 percent. Second, the actuary's computer total return over a five-year period ill reduce the likelihood of a bad year dragging down the earnings of the fund. It also means that because of the very strong returns we've had over the past years, the fund has $260 million in gains that have not been computed into the five-year holding average. In short, we started off with a big head start. 360 11/30/98 - WHOLE - BILL NO. 75 percent interest rate on the bonds. 6 percent. That is substantially above the 6 and 9 three-quarter percent that we have to meet. 10 In short, given the low interest rates 11 that we would obtain on the bonds, we think there is 12 no risk for the pension fund if we earn less than 13 the 6 and three-quarter present over the next 30 14 years. Approval to allow us to sell pension funds 15 and process proceeds of the pension fund will help 16 our pensioners and help the pension fund's future 17 become completely independent of the fiscal 18 condition of the city. 19 We urge council to approve this 20 legislation. And we respectfully request a suspension of the rules. Thank you.
Thank you, Madam Chair. Good afternoon, Mr. Hayllar. 361 11/30/98 - WHOLE - BILL NO. 980789
Just a couple questions. Over the past five years -- just a statement for the record. Over the past five years, has the unfunded liability grown, declined or been stable? And what are the numbers?
I've been -- deferred this to Joe Herkness. But my belief is the unfunded liability has grown, and it will continue to grow at a slower rate and then become smaller until the year 2019 when we have, according to the current payment schedule, paid it off.
So to take it back and do it again, it is growing but at a slower rate of increase?
Yes. Yes. It used to grow at a slower rate because of the massive amounts of money we put in to fund the liability, to put in $53 million this year of fund pensions. For our firm employees were current employees and 193 to 362 11/30/98 - WHOLE - BILL NO. 980789 reduce the liability. That 193 payment goes up each year. So eventually the liability becomes -- the growth of the liability becomes smaller and turns the corner, and by 2019 it is escalating payment schedule disbursement.
Five years ago, it is 2.6 -- about 2.6 billion, right. Now, I could check, get an estimate from our actuary for what was it five years ago. It was certainly larger than it is today, that's for sure. We could get that number for you, if we had to. Our actuary says about 2.4 billion.
That's what he estimates. It continues to go up to 2003 and begins to drop ever so slowly. And the peak is 2003. And then it dovetails off to 2019 where it goes 100 percent funded under the present schedule. But those 363 11/30/98 - WHOLE - BILL NO. 980789 numbers --
Mr. Hayllar, on the handout that I believe we received at the briefing, on , you guys -- this reminds me of some of those term papers I used to do at college. You just get as large of a type as possible with one sentence on a page and increase the number of pages so you can get a good 15-page report. The one sentence on here says: "An additional $1.25 billion will improve pension and investment returns." I take it to mean -- I take that to mean that if we have more money, we are able to access additional investment opportunities and make more money.
That's correct. And I was trying to summarize my testimony because of the lateness of the hour. But one of the points I make in there is we have an inefficient system because we had so much money in cash. We had $33 million a month to pay benefits to our pensioners, we therefore have to 364 11/30/98 - WHOLE - BILL NO. 980789 keep more cash than we would like. Cash earns less than long-term equity and investments. And we are deficient. We have assets in fund. We can earn more.
Now, on this same document, it says: "The pension fund will pay out 30,000 retirees and 30,000 active employee participants in sound retirement without increasing the cost to the operating budget."
In your opinion, isn't it that the pension fund will reduce the amount of increased cost to the operating budget.
Yes. It will avoid that huge growth that we are required to make, one because we are borrowing at historically low interest rates and, number two, we are able to extend the debt out from 219 to 230.
I understand that. If you didn't have that additional information, this statement would lead you to believe that there would not be any costs to our operating budget if we do the pension obligation funds. 365 11/30/98 - WHOLE - BILL NO. 980789
That is correct. There is not an increased cost by the operating fund by doing pension obligation funds; you are avoiding those increases.
But there are increased allocations from the operating budget to the pension system even with pension obligation bonds over what we are contributing today?
So you are cutting the rate of increased contribution?
Councilman, this might be helpful. This is a graph of the current payment schedule, which is in my testimony. And the red line is what the projected payments would be with the debt service plus the ongoing liability. It shows --
No. This is . Plus another line showing you the difference. 366 11/30/98 - WHOLE - BILL NO. 980789
So with the pension obligation bonds from 2000 to about 2011 or so, there is an increase, although is at a lower rate than the increase without a pension obligation bond. And without the pension obligation bond, the increase continues into about 2020; first it is leveling and then at about 2011 with some slight decrease --
Yes. The difference between the blue line is what you will save by doing this.
Okay. On the handout, this chart seems to indicate that we have an average of 12.6 percent return over the past five years --
And then , the last five years of the S&P 500 Index and a 367 11/30/98 - WHOLE - BILL NO. 980789 couple of indices that are normally compared to.
Yes. And if your BOGIE (ph) -- am I interrupting your question?
You just completely destroyed my whole frame of thought. Now I have to go back to the beginning.
Now, you want to anticipate the question of 12.6 percent over five years as compared to what?
The target you have to reach is the pension fund must earn more than 6 and three-quarters percent over the next years. If it does, we won. If your don't, you have a problem. We believe given the material on that there is a stronger than strong likelihood that that is exactly what is going happen.
I understand. I appreciate the answer. Unfortunately that was an answer to a question that I didn't ask you. The 368 11/30/98 - WHOLE - BILL NO. 980789 question I want to ask is: The return over the past five years is 12.6 percent?
The last five years on , the S&P 500 Index at 20.23 percent, the Merrill Lynch fixed income at 7.5 and the Merrill Lynch (unintelligible) at 4.8. How do we stack up against those numbers?
We were for the last five years as you pointed out at 12.6. That is because the asset allocation of the funds is not all in stocks. If they were all in stocks, it would be 14 percent. 15 We have to risk downturns of the 16 market. You have 38 percent, I believe, fixed 17 income. So a blend of that, which is 12.6 percent, 18 these various indices of particularly heavy 19 concentration on the cash drags our return down. 20
Our stock return? The last two years our return on equities would be -- total equity for the year that ended in June 1998, it was 1209. 369 11/30/98 - WHOLE - BILL NO. 980789
Over the past five years was 20.23 percent. But I want to know what the Philly's comparable number is in our portfolio for the past five years.
You can get me the last five years to compare with the charter numbers that you lay out in your handout on ? I would like to be able to match our portfolio with these various indices.
Now, is it my understanding that because there seems to be some level of discussion about this, the $1.2 billion minus the various fees that are involved in these transactions, do all of those dollars go to the pension system directly? 370 11/30/98 - WHOLE - BILL NO. 980789
Yes. The cost of issuance will be recalculated to be about 2.05 percent of the billion and a quarter.
No, sir. All assets go to the pension fund. By law, once it is in the fund, it cannot be taken out.
Part of the discussion or confusion about that particular issue may have been generated by , which talks about the F.O.P. arbitration of $102 million, community tolerance, $5 million, open fund, recreational fund, $5 million, and cost of living bonus for retirees $22 million.
What are you trying to communicate on this particular page in the context of pension obligation fund? Because all of those are operating budget issues.
This is the increased payment that the operating budget would have to make over the next five years if we did not do the pension obligation bonds. If we do the pension 371 11/30/98 - WHOLE - BILL NO. 980789 obligation bonds, this amount of money over those five years would be freed up because you are avoiding that growing costs to the pension fund?
Where did the $102 million from the F.O.P. arbitration come from?
From the budget office. That was the estimated cost of arbitration for the five years, the one you just alluded to.
I take it a two- or three-year contract that expires when?
I believe they are all up in the year 2000, but the recent arbitration must cost about at this number.
That has not been arbitrated yet or negotiated yet, and we don't put a package number in ahead of time. Obviously that comes to the floor in the negotiations.
This page is meant to be 372 11/30/98 - WHOLE - BILL NO. 980789 illustrative of the type of -- by avoiding these costs of what you are able to do to avoid increases.
So other than -- I mean, you could have very well picked four other things, or you could have picked ten things.
I mean, what is the relevance of in the whole scheme of things to the enactment of the pension obligation fund?
It is the illustrative of what costs to your employee that you would be able to spend on things that are before us today. And it could be other things. It is up to Council and the budget process. So the avoiding costs is -- the avoid of cost is --
Somewhere in the course of putting this package together, someone had to make decisions on what was going to go on the page and it was decided that these four things might be of some interest to somebody --
-- as the kind of things that you could find that if you did the 373 11/30/98 - WHOLE - BILL NO. 980789 pension obligation fund save X amount of dollars, and you could put your money in these things or you could put them in something else, but you guys decided to put these four things down on a piece of paper.
With regard to the last line on , the cost of limited bonus for retirees, can you explain that for the record? And can you shed any light on the larger issue of cost of living adjustments or COLA, and what impact or relationship this bill has to that, if any.
The bill would allow us to do something of that nature if we chose to, if we collectively chose to do it. What we had proposed is retirees go out --
If we had chose to do -- if we collectively chose to do some type of a co-op, cost of living adjustment for people that had been retired. If you had been retired for ten or 15 years, your pension is based on a salary, because inflation is lower and it is fixed. So the only 374 11/30/98 - WHOLE - BILL NO. 980789 relief you get is on any pension or Social Security. We recognize that particularly when you get to a pension that is now going to be less at the smaller liability, then you may be able to -- you may want to address that, and that is what this referred to. Now, as you know, we will be discussing this at great length at approximately this time next week, I think it is the 7th or the 8th, where there are various proposals that have been presented. And I hope by the time we are done, there will be one we can agree on.
Now, your proposal here, there are no documents on this.
I believe there is a -- there is a legislation that has been introduced.
No. I am talking about your item here, the cost of living bonus. I mean, you consider that that's a distinction between a one-time bonus versus a call that is ongoing --
Not necessarily. An adjustment. And adjustment that in most pension funds in the public sector, particularly when you have gone under the liabilities, their ad hoc 375 11/30/98 - WHOLE - BILL NO. 980789 adjustments that are done either every few years or whatever the issues comes.
But even in that situation, the adjustment goes on from that point forward.
They can get $25 more a month or until the next one happens or doesn't happen.
And this particular proposal, it is essentially a "one time, you get the cash, go on with your life"?
Now, has the administration done any work on what I will call a more traditional or truer call notwithstanding the bills that have been introduced? Has the administration done any work on that particular issue?
We are continuing to explore internally contributing in terms of our 376 11/30/98 - WHOLE - BILL NO. 980789 options. The one proposal that you have seen that we will be discussing early next week has a billion dollar price tag, it is one billion two over ten years. It's our view that the money is not there for that. Is there something that you can give for relief to pensioners that is appropriate; is there a mechanism that is an appropriate benefit (unintelligible) between now and then we can find them.
Now, we received new authorization from the Commonwealth to issue these pension obligation bonds?
And this debt apparently does not effect the general -- the generally referred to debt ceiling of the city.
That is correct. Because you are transferring one liability to another.
I understand. How do you decide on the $1.2 billion figure? You have a $2.7 billion unfunded liability. How did you come to this one?
There is not an empiric 377 11/30/98 - WHOLE - BILL NO. 980789 answer to that. We are, in fact, advanced to $1 million --
Yeah. The narrative will try to explain. We had originally suggested a $1 billion pension fund. But as we were working on this, there were those, and they were on the Council's technical staff side, that thought we could do more. Because there is an ever-so-slight market risk, what if we don't, the pension fund doesn't earn more than the interest rate on bonds, because for us it is uncharted? We thought that a billion and a quarter was a proved number. That takes us into our pension, so it would be approximately 72 percent funded. Actuaries will tell you, as our actuaries have, that after 70 percent you are in a substantially better position than if you are only 50 percent funded. So the answer to your question is, if we felt comfortable with a billion and a quarter, if this works, as we believe it will, the City can go back and fill the remaining liability 378 11/30/98 - WHOLE - BILL NO. 980789 with another issue from the future. 2.7 billion --
There was a two-year window on excluded. It does not count toward your debt scheme. Presumably you could redo --
So we have to come back relative -- when is the two-year dead line over?
When does the window open and when does the window close?
The answer is October 2000 the window closes. The window may be reopened, but right now the legislation is the year 2000.
So between now and October of 2000, your testimony is we would have 379 11/30/98 - WHOLE - BILL NO. 980789 until all issues on pension obligation bonds related to unfunded liability?
Under the current state legislation, you can go back and state the increase -- okay. The number was wrong. It is December 31st, 2002. Okay? I just added two years. It is December 31st, 2002.
Yeah. You could extend that through state legislation if you wanted to fill for a meeting liability. Now, there is a theory that having that liability gives us some flexibility, because as you know, the bond payment must be paid by the date specific of a calendar year. A pension obligation, you can slide the payments of this thing -- I mean, the city is in financial difficulties; it deferred those payments. Paying interest to the fund, it deferred those payments. So it is what is considered a soft obligation even though -- as long as it is paid within the year, you have some flexibility on when you have to pay it. That could be of some value to us again 380 11/30/98 - WHOLE - BILL NO. 980789 if we found financial difficulties.
So if you only do one of these, it will be the 1.2 billion, and you get 72 percent funded, at what point in time is your estimate that we get to virtually full funding of our liability?
I've had that and I don't have it with me. We would never quite get to 100 percent, and you may not.
My name is Kenneth Kent. I am at Mercer Incorporated, and I am the actuary for the retirement system. There are two answers. If you continue to maintain the same funded policy that you currently have, if you get fully funded, your own funding goes to zero. At the same point in time, the difference before and after the proceeds come 381 11/30/98 - WHOLE - BILL NO. 980789 into the fund is in the amount of annual payment, not in the period of time over which you are paying. However, there is state legislation that says that once you become 70 percent funded, instead of funding your unfunded according what Act 205 initially put into place and which has various different pieces to it that are spread over time, you can go into a rolling ten-year funding, which says what is my unfunded, spread it over the next ten years. Next year you redetermine the unfunded and spread it again. So at some point in time you probably revert to that method and under that method you do not necessarily get to the point where there is a zero unfunded. But it will go down significantly.
Okay. Thank you. Mr. Hayllar, my last few questions. Where does Philadelphia rank against the top ten to 15 cities of the country on our level underfunded liability versus those other cities?
We are probably way below. In Pennsylvania it is very common to have unfunded liabilities of considerably large size less 382 11/30/98 - WHOLE - BILL NO. 980789 so in other parts of the country. So I would suspect that we are in the lower end of the pension being funded.
And lastly, just to establish for the record, it is your testimony that the passage of the pension obligation bond bill 8 should have passed, and the receipt of the proceeds is not in any way, shape or form directly related to the offering either of this bonus, possibility of bonus that you outline on , or consideration of the one or two or three cold bills that we may have discussion on next week.
That's correct. This allows you to avoid costs. This allows to you spend money in the future that you wouldn't otherwise have, that you avoided those increases. How that is spent, it's up to council and administration at that time.
Let me reiterate the other point: Every dollar of this goes into a pension fund where it cannot come out for any other than pension benefits.
Thank you. 383 11/30/98 - WHOLE - BILL NO. 980789 Thank you, Madam Chair.
Mr. Hayllar, what is the impact of the pension fund and the City's Debt Service Requirement if the State takes over the judicial system?
That is a great question. We believe -- John Nixon, who is outside counsel for the pension fund is here. And he has opined that money that is in the pension fund can be used only exclusively for the beneficiaries. We don't believe that this money can be moved to the State under that IRS ruling. How the stay -- as the State take the court employees and moves them, it has to resolve the pension issue. And there have been suggestions where we think they have run afoul with the IRS and the money has to be -- it's our pension money. One solution that the State hasn't advanced that had, is that court employee that are in the city funds become state employees but that they would remain participants in our fund. And the new employees would go to the state fund. To me, that makes the most sense. 384 11/30/98 - WHOLE - BILL NO. 980789 Once again, that is not necessarily what people are talking about. The absolute answer to your question is, we don't know at this time.
How will the City distribute the Debt Service Payments of a Pension Obligation Bond to the various city funds?
Okay. We have talked about a number of mechanisms, but particularly the water and Aviation funds since they, too, will benefit. They will have to pay their share probably during the annual accounting that takes place between the funds for services rendered by the city to the Aviation fund, to the Water Fund. The easiest way would be to count forward. At that point, they would make their share of the debt service at that time. That is not necessarily the only way it is done, but I think it is the easiest way.
Well, are there any special approvals required from the airline since the Aviation fund will participate in the 385 11/30/98 - WHOLE - BILL NO. 980789 pension obligation fund?
I am going to turn around and make sure when I say we don't believe so, to make sure I am absolutely correct. Because I know I addressed that issue. What do you know, I was right. Mr. Rucci (ph) of the law department informs me that it is an operating experience and we do not believe their longstanding approvals.
Thank you. What are the projected savings to the City over the 30 year in terms of this bond? How much of a savings will go to the general fund?
I wish I -- 254, 254 million -- the vast majority of that savings goes to the general fund. And that is on the present value basis, I believe.
How quickly do you anticipate that the money managers will be 386 11/30/98 - WHOLE - BILL NO. 980789 able to invest these funds?
That is a question that should be directed to Sandra Parker, the Chief Investment Officer for the Pension Fund. She is fully aware of this obligation.
Sandra Parker, Chief Investment Officer of the Pension Fund. It will take probably about six months to get fully funded; however, we do have an interim plan, and that is that we will be fully invested in the appropriate asset classes by using what we call a liquidity fund. And it consists of using commingled index funds so that we won't be out of the market at any time.
Our intention is to get the money to work as quickly as possible. (President Street returns to the chair.)
Thank you. My 387 11/30/98 - WHOLE - BILL NO. 980789 question is what to do with the separate fund on --
That's a little better. I could see the look on Councilman Cohen's face. I couldn't hear.
I am intrigued by the separate fund that you referred to on of your testimony applied, that actively permits small businesses, minority and women businesses to participate in the City's bond work. If I understand it, the City is going to carve out a fund between 80 and 100 million to be allocated to both with -- our present pool would not be able to participate since our rules require that the City's fund deny people greater than percent of the total business -- 25
We also require a five-year additional track record which the new fund, of course, doesn't have.
Right. I am very excited about it. Have any other cities tried it? What has been their experience?
I am not aware of any that has tried it in exactly the fashion that we are talking about doing it. But there are a number of examples throughout the United States where local governments have set aside pools of money to help facilitate small businesses or minority-owned businesses. Actually, there is an interesting project going on right now with the State of California. The huge the megaphone, the, you know, 100-something-billion-dollar fund where they are doing something like this as well.
Well, I applaud you for it. We have been talking about the deed to cut down contracts so that small and new companies could have an opportunity to bid and be 389 11/30/98 - WHOLE - BILL NO. 980789 successful and, therefore, earn the resume points that go to saying I do business with the Board of the City of Philadelphia. I applaud you for this today. Thank you, Mr. Chairman. I have no 7 other questions.
Thank you very much. The Chair recognizes Councilman Tasco.
Thank you. Back to . I totaled for the five-year period a total of $134,966,000 of what it costs to be paid out by the general fund this is the cost that you say is to the general fund?
So the savings that the general fund is not paying into the pension fund?
Yes. The general fund is about 86 percent of the total payment.
Councilwoman Verna asked you what the sale was over 30 years, and you said 254 million?
Could you 390 11/30/98 - WHOLE - BILL NO. 980789 explain to me, please?
If you look at the graph I just gave you, after the year 2020, with this debt service, we will be paid more than what we would have been paying under the current funding plan, because at 2020 or 2019, our requirement had dropped from 500 -- well over $550 million a year to just the normal cost, the cost of your current employees, which would be, say, around 50 to $70 million a year. So you have this big savings. So after the year 2020, we would be paying more than we would under the current plan. Of course, our problem is, we will never get to 2020 with this huge spike of payments. So you are paying more in the far end but at a level and livable amount than you are reducing your payments in the early years of the 20th Century. That's why the PD savings over the life of the issue -- because you pay more at the end and less at the beginning.
So the items outlined on , the suggested distribution could be anything. 391 11/30/98 - WHOLE - BILL NO. 980789
Yes. Yes, that's correct. We were trying to demonstrate the things that perplexed the budget office now. These are things that can be funded now; it could be something else.
But suppose we don't do this, do you still have to pay these costs in the end?
You certainly have to pay the $102 billion police arbitration cost over five years; that is the embedded cost. So what will happen is, Council will continue to be confronted with the issue of trying to reduce the cost of services or reducing services or ultimately raising fees and taxes. These are very unattractive options. The pension bond by extending out this liability and by reducing the increased costs to the currently (unintelligible) allows us to avoid that.
This is five years. There is no nothing magic about it; this is five 392 11/30/98 - WHOLE - BILL NO. 980789 years, it is a five-year plan. In the year 2005, instead of paying something like 300 million, we would pay something like 260 million. That is not a savings from what we pay, now but that is a voided increase that we will be able to take care of. we are doing a very rare thing here, something that wasn't done generations ago. We are think being the future.
In terms of trying to find a way to give annual pensions cause, have we looked at other cities that ran (unintelligible) from your bases and see how we can do it at some point in time?
We are wrestling with that now. I would caution you that an annual increase is very, very difficult because of the mammoth expense involved. But we had made a suggestion. What I am told most cities do is when they are able to, they make an ad hoc adjustment either in the base or one time bonus, but it is not -- it is not projected necessarily into a firm plan simply because of what that will do to the funding requirements and pension; it will drive them right up again. 393 11/30/98 - WHOLE - BILL NO. 980789 But we will have a hearing, I believe, on the 7th of December, by no small coincidence that will be Pearl Harbor Day, on this issue.
I have one more question. Even though this is a savings to the general fund, what would keep us from putting the savings back into the pension fund to further reduce the -- (unintelligible)?
You could do that if you wanted to. I would probably suggest that you have other expenses of the City which might be a higher priority to you in other safety realms and so forth. When we do this, we have made such a profound improvement in the condition of our pension that, you know, it is not to say that we 394 11/30/98 - WHOLE - BILL NO. 980789 can rest, but we will have made profound improvement, 50 percent funded to 72, 73 percent funded. That will be a major step forward.
Thank you, Mr. President. Certainly we have heard references to other bills related to this issue for which we will have dealings on December the 7th. I am requesting that we then be able to consider, even if we don't finish this today, that we not consider any of this, since this is all related until we've had a chance to hear all of there. So I am making that recommendation. There is a chair -- we have gotten all councilmembers since we have other pension bills as well that were all -- (unintelligible.) We have two other pension bills on the 7th, and so we are requesting that we consider all of those, take no action until we've had hearings on all of -- on all bills so that everybody is clear on where we are.
I don't believe that 395 11/30/98 - WHOLE - BILL NO. 980789 Council can conclude the process before the 7th; however, you will be able to do virtually nothing without this bill. This is the bill that gives us the relief in the future.
Then how does this bill relate to the other bills that we have to hear? How will they affect it?
It avoids -- right now what other designated committed increased cost in the general fund. How Council deals with that is a matter Council of the Administration will decide. But without that avoided cost increase, you are not going to be able to do much of anything. Also, I don't believe the process allows you to take action until the 10th of December anyway.
Well, the process will allow us to vote on this a week before we vote on the other ones, because we won't hear those until next week, and we are here on this today.
Councilwoman, no 25 matter what happens, we would report -- just fill 396 11/30/98 - WHOLE - BILL NO. 980789 out today. It wouldn't come up on the second meeting the final passes calendar until after public hearings on the bills that you mentioned. So in any event, there could be no action, no 6 final action taken on this bill, before the bill 7 you are talking about on this for a public hearing. And we have a public hearing on it.
Yes, we have it scheduled. I just wanted everybody to get a full picture of all of it. It is all very complicated. And it is difficult enough to try to follow it without having to rehear some other related issues and not know where it all comes in. That is essentially -- we want to (unintelligible) for our city. We want to make it as painless as possible for all of us to keep up with what is going on and to make sure that we are trying to do the best for citizens. Thank you.
Thank you very much. The Chair recognizes Councilman Cohen. 397 11/30/98 - WHOLE - BILL NO. 980789
Thank you, Mr. President. On , the first item is F.O.P. Arbitration, 102,841,000. When was that arbitration?
It was the salary -- it was the arbitration on the remaining -- their salary for the remaining two years of contract.
Their salary? The pension fund doesn't have anything to do with the salary.
No, no, no. All this is meant to do is to illustrate having avoided those costs you are now committed to make to the pension plan, having avoided them, what that money might be used to do. One thing clearly is because the increase that the police officers received is embedded into the --
It is also (unintelligible.) 398 11/30/98 - WHOLE - BILL NO. 980789
No, no, no, no. Excuse me. Their contract left open the last two years, there was no annual -- there was no pay increase. They came back after two years of the contract and arbitrated just the salary increase for the final two years, I believe it was, of the contract. That's what this was, and that was done earlier this year.
Thank you. Just for clarification, this may be maybe semantics, but, some of the terminology I think that Mr. Hayllar is using creates some level of confusion. In response to Councilman Cohen's question, he gives the impression that there was some four-year contract, and this is the balance of two years of that contract. I thought the 399 11/30/98 - WHOLE - BILL NO. 980789 situation was that the F.O.P., unlike some of the other unions, did not take a four-year contract in 1996 but took a two-year contract in '96, and that the recent arbitration that Mr. Hayllar is referring to is nothing more than another two-year contract. It is not the balance of some other contract or some other negotiation. They took two and two instead of the straight four; now isn't that correct?
So when you keep saying the other two years for the billion of the contract, you're giving the impression that it was a four-year contract and that something didn't get done in the first two. It is two separate contracts.
And cost of the contract was paid out of the general fund?
What was the 400 11/30/98 - WHOLE - BILL NO. 980789 relevancy of putting it on dealing with it --
Because it is one of the costs that we are confronted with having to pay that you would now be able to pay if did the pension funds and freed up this increasing payment that you otherwise had to make to the pension fund.
Do you mean the City was in the position where it couldn't pay the police officers even though we had $169 million surplus?
Well, that's an annual surplus; that was only one time. But the City would have had to pay for that ongoing. And this frees up funds so Council doesn't have to make the consideration of what bills to cut, whether you have to raise a fee or a tax. This frees up funds in the future and allows that to be accommodate.
I am just trying to understand. Couldn't you have said Class I salaries, whatever that figure comes to?
Sure. You can put 401 11/30/98 - WHOLE - BILL NO. 980789 anything on the list that you are trying to show that the extent of the savings over five years that permitted by doing the pension fund.
Then can I assume that the total savings will be the four items listed? Just back them up on ?
Perhaps over the first five years, over the entire life of the issue of the present value savings of 254 million. But if you look at the graph I gave you, the difference between --
The first five years, which is covered on , the savings would be 134 million, 135 million basically.
Out of what doesn't have to pay for unfunded obligations.
Did anybody 402 11/30/98 - WHOLE - BILL NO. 980789 compute -- this is -- I have to say really a clever thing; in common, mayors usual complain that the last mayor left them scrap for funds. But, Mr. President, you or whoever becomes the mayor don't have to worry, because this won't affect the mayor for years. 8
Well, it won't 11 benefit the mayor beginning in the middle of 12 2020? 13
That is correct. It 14 will be fun to be the finance director in the 15 year to 2020. 16
Assuming a mayor 17 gets elected in real fact for eight years, 18 because I think every mayor has succeeded in 19 getting reelected since the new charter came in, 20 would mean that the time it hit hard would be 20 years down the road.
Well, it wouldn't hit hard, because at that point you have a fixed managing expense, you know what it is, and you are able to make it -- it is the continuing 403 11/30/98 - WHOLE - BILL NO. 980789 growth that we currently pay that is causing us so much stress. As you can see, starting in the year 2011, that is a fairly level payment. It also does not take into consideration any inflationary growth in the budget. So as a percent of budget, it may, in fact, be a smaller number; you don't know. But it is a much more manageable issue.
Well, looking at the chart, has anybody computed the amount of millions of dollars --
-- of the red part that it will be spent against the savings --
You have the total? 404 11/30/98 - WHOLE - BILL NO. 980789
Well, the entire present value savings, 254. Those years after 2020, I have that number. I will provide that to you.
I am asking for, I think, a simple question. In the years where the red line is below the green line -- do I have the right colors? Red and green?
You want to know the increased costs from the year 2020 to 2029?
No. No. I want to know how much you save in annual payments between the year 2000, the charter begins with until the middle of 2020 --
-- where the red line is under the blue line. And then I want the other amount from the period from 2020 to 2029, where instead of paying only a little over 100 million to 150 million in that period, it would 405 11/30/98 - WHOLE - BILL NO. 980789 seem the chart indicates that there are payments of 350 million for each one of those years. The red line seems to be pretty level around the 350 million.
Which means in the last eight, nine years, ten years, whatever that covers, the City would be paying 200 -- 200, maybe 225 million more each year.
However -- yeah. I understand the comparison you are making. The other way of looking at it is saying, that in 2020 you paid 550 million than goes down to less than 350 million.
I understand that. But I think each of us would like to at it the way we look at it. It gives us something to go on.
Each councilmember may have a different way of evaluating.
It will be very important to me. 406 11/30/98 - WHOLE - BILL NO. 980789
Having that rather than making a rough computation. Now, the pension fund to the city, somewhere in your statements you indicate that there are 30,000 employees who are currently receive pension benefits.
What are the City agencies that are covered by our city pension fund? The City of Philadelphia?
The city employees, the Water Fund, which is the Water Department, the Aviation Department --
How many does the City of Philadelphia have currently receiving -- retirees from the City of Philadelphia, how many of them are currently receiving payments?
There are about 32,000 retirees and beneficiaries and survivors that receive benefits each month. They are from --
Because I thought the statement said there are 30,000 --
How many are from the City of Philadelphia itself? 32,000?
I would just be guessing at that Councilman. But the general fund is just the bulk of the funding over the years. The Aviation and Water have a small percentage, but they are all members of the fund.
Can you get members roughly of the others, the Aviation --
Sure. Sure. It is probably around 85, to 86 percent of the entire amount the general fund employees.
What are the other 408 11/30/98 - WHOLE - BILL NO. 980789 agencies?
Water Department employees do not get check that say "City of Philadelphia."
No, they do. But the Pension Fund looks at them as different, because they are paid out of the Water Fund, their contributions. They are differently. So it is General Fund, Water Fund, Aviation, Parking Authority --
I don't know how many employees are in the Department of Aviation --
Of the different government bodies who are involved in the City of Philadelphia's Pension Fund. 409 11/30/98 - WHOLE - BILL NO. 980789
Whether they are City of Philadelphia employees or not, just say the City of Philadelphia, how many retirees are from the City of Philadelphia; how many from the Aviation Fund; Water Fund and every other fund? Does gas works come under the City of Philadelphia?
That's an interesting question. The answer is we would like to think they are. And the review of the PGW Pension Fund is something we need to do very soon. But in most areas, the answer would be, yes.
Right now there is no 25 unfunded liability for the PGW Fund. 410 11/30/98 - WHOLE - BILL NO. 980789
Oh, yes. It's a different actuary but the same actuarial standards, yes.
You stated in here that the City pays out -- the pension fund pays out $33 million each month for benefits currently.
And how much of that money comes from contributions from the various employees covered say currently? How much of that $33 million is amended by employee deductions.
There is about -- there is about 40 some million. I have to double-check with the actuary. The exact amount comes in every year from employee contributions.
Why do you have an item saying about 56 million was the normal contribution of the City? Why is that a separate number than the unfunded liability? For example, on , you say "53.6 million (normal cost) plus 193.7 million unfunded."
Of to 247 million the General Fund paid into the pension this year, about 53 was paid for the pensions of our current employees. If there were -- if there were no 15 unfunded liability, that's the number you would have paid. But because of the enormity of the unfunded liability, an additional $193 million was paid, the two of those should come to about 247 million.
Can you give us a simple example of when the unfunded liability would come into play? For example, from the various -- did we this past year increase the money in the pension fund from what it had been 412 11/30/98 - WHOLE - BILL NO. 980789 the year before?
So from all sources that the pension fund received income, more came in than went out; is that right?
No. The contributions we have to take dollars down from the Corpus Fund, we have to sell securities in order to meet approximately 390 million this year that will be paying out. The external, what we call the external contributions, which is the City's contribution and General Fund, then there is dividends and interest on the investments which is cash -- not equity driven. Because the stock is up. It is on paper. It doesn't do anything from the retiree's check. It is only the cash. So the dividend's interest is a much smaller return to fund. It is only about maybe to percent. You add that up, you then have to take down -- you have to sell securities over the period of the year in order to make your $32 million a month. So you have to plan your cash flows. So the external contributions are very important. 413 11/30/98 - WHOLE - BILL NO. 980789
I just find it impossible to comprehend how a pension fund, which I understand now has about $3.2 billion dollars in it and which, when I came back to council in 1980, had only a half billion dollars, how an unfunded liability that has enormous growth -- and I think there are fewer employees now than there were in 1980 -- I just can't understand how the unfunded liability can be so great when we are taking in more money than we are putting out every year. What does "unfunded liability" mean?
Yes. This is Kenneth Kent again, from Mercer Incorporated, the actuary to the pension fund. The unfunded liability -- first of all, first we start with a liability. The liability reflects the basic contract between the fund and the City employees to provide them with benefits for those for are retired and also for 414 11/30/98 - WHOLE - BILL NO. 980789 those who are active, and the best representation is for the service of your active employees. Up to the present so there is a liability to provide them with retirement income either currently or when they come up to retirement. And then we have the assets of the fund. When we compare the assets to the liability to the extent that liability is greater than our assets, that difference is our unfunded liability. Okay? So that's what we mean by "unfunded liability." Is that clear or --
Well, I hear your words. But I am confronted with fact that we paid out -- say if it were $33 million each month. We paid out about $400 million last year, assuming the figures were the same, and it may have been a little bigger or a little smaller. We have a kitty of over 3 billion, and a kitty that seems to be growing all of the time because it is multiplied at least six times since 1980, it seems to me that there is no unfunded liability, that the pension fund is enormously strong.
Let's start with one piece 415 11/30/98 - WHOLE - BILL NO. 980789 first. We have 32,000 retirees receiving payments. If we were to just close the books on those 32,000 retirees, we would need about $3 billion of assets sitting in a bank which would generate sufficient income and draw down the principal to pay those 32,000 retired participants for the rest of their expected lifetime. Okay? Then we have active participants who through their service with the city have accrued benefits; they, too, create a liability which is about $2.4 billion. So if we were to stop the fund and cover just the benefits they've earned to date, we need $2.4 billion. The assets are not sufficient to cover both of those.
But this is all based upon an assumption -- I don't see how it could ever come through. You are talking about a liability that would be imposed if the city government went out of business. And I can understand that kind of principal to a private enterprise that may, you know, have problems. But I don't see governments going out of business. And the City of 416 11/30/98 - WHOLE - BILL NO. 980789 Philadelphia, particularly, I don't -- I just can't understand why we are compelled to put so much money aside for an event that will never happen I think in anybody's lifetime in the city who lives for a couple of hundred years and I would expect don't expect to live for much longer. It seems to me that this is just a pipedream that we are talking about. What makes it necessary that we do this?
State Legislation Act 205 which compels and requires the City to adequately funds the benefits using sound actuarial principles.
And it is the same principles that apply to private enterprise that are applied to the government?
They are different principles but very similar in form. Okay? But the State of Pennsylvania has set up its own schedule. And the purpose of that is because before 1985, when the actual fund was passed, there were many cities that were doing just what you suggesting; they were making sure there was 417 11/30/98 - WHOLE - BILL NO. 980789 enough funds in the plan to pay out the benefits during that year. And the problem was that if there was a downturn in the City's ability revenues or those revenues did not grow at an accurate level, the City would find that there is not enough money in the fund to pay those benefits, and they were strapped with having to come up with a general road. That it is not a sound actuarial approach to funding the plan. The State legislated an approach which obligated all municipalities to meet as a minimum municipal obligation a certain level of contributions.
Does the State Pension Fund have to meet the same test we do?
I think the State is fully funded and legislation is similar. But Act 205 is specifically for the municipalities.
And the State also has, as I understand it, a COLA that applies every year? 418 11/30/98 - WHOLE - BILL NO. 980789
No? These school district employees or state employees, does anybody have any information on that? I would like to know what group of public employees in the Commonwealth of Pennsylvania enjoy the annual COLA that we talked about.
My name is Joseph Miguel (ph) Executive (unintelligible) of PICA. There is no state -- either state teachers or the state employees -- pension plan that do not enjoy a COLA. What Councilman -- what you may be referring to is a General Assembly during the spring session did pass a pension supplement so that employees, given different longevities of state service, were entitled to an increase in their basic pension benefit. But there is no 419 11/30/98 - WHOLE - BILL NO. 980789 COLA from any state employees, be they members of the School Teachers Retirement System and the State Employees Retirement System.
Because we ask that you get that information. Because we are told that there are health benefits that are not available to city employees that are available in perpetuity following retirement. There may be a requirement that the employee had worked a set number of years --
I mean, the only ones I know from firsthand experience are judges. But that's because...
Councilman, the teachers system does not have health benefits after retirement. I am not sure about the regular public employee system.
You say that's why it -- 420 11/30/98 - WHOLE - BILL NO. 980789
Excuse, me Councilman Cohen. I don't want to be unduly restrictive of your right to ask questions --
Well, if you make your motion, I will ask for a quorum.
Do you choose, Mr. President, to be the questioner today? Because I took my light on as soon as the witnesses began and there has been unlimited questioning and I think very relevant questioning.
I don't mean to 421 11/30/98 - WHOLE - BILL NO. 980789 suggest that you won't have another opportunity to question this --
I don't know. After Jim Kenney sometime. He's next. You know, I just thought maybe we could move it around a little bit.
And request the floor after he finishes. I don't want to hold him up.
We actually have a quorum here, too, by the way. The Chair recognizes Councilman Kenney.
Thank you, Mr. President. I won't be long. Just a couple of comments. First, with due deference to Councilman Cohen, said he doesn't remember seeing, he only had a business any time lately -- 422 11/30/98 - WHOLE - BILL NO. 980789 I know his memory is good, but he must have forgot 1991. Because I think we were as close to going out of business as any city in business ever was. Secondly, I agree totally with Councilwoman Blackwell that the issues in dealing with refinancing and with recertification do directly relate to the other issues that we are going to do with on the set. And while I recognize and agree with Mr. Hayllar that unless we refinance and pass this bill, this financing bill, there will not be the ability to deal with any of the issues that we are going to have to wrestle with on the 7th. Having said that, I would ask that this panel, this group, and the administration in wrestling with this COLA issue, both from a uniform and ultimately a non-uniform perspective deal with the issue of those people who are truly in need. And the reason I raise that is because I was first intrigued and interested in the uniformed COLA request based on information provided to me dealing with people who either 423 11/30/98 - WHOLE - BILL NO. 980789 retired back in the mid '70s or who were widows or retirees back in the mid '70s, who are experiencing a serious struggle in providing for their monthly needs of housing and medicine and food and other things. And I am not prone from an ad hoc perspective to be giving the universe dollars that may be the universe doesn't need. Those people who are truly in need who are struggling, who are widows, who are elderly, who have retired 25, 30 years ago, under a system and under a monthly payment plan that does not meet their needs today are my main priority. And I am not saying that the ad hoc -- your ad hoc plan has not been really spelled out for us yet, is not a good thing or not an effort to try to address some of those concerns. But as I said to you earlier, if we can begin to try to target from the first priority, those who are struggling to live every month and then move on from there, that is something that is very much in my interest that I am willing to note. I recognize that there will be 424 11/30/98 - WHOLE - BILL NO. 980789 disputes between the uniformed employees and non-uniformed employees, the City, the Pension Board on what we really can afford or really can't afford, and I guess ultimately we will have to make that decision on what is affordable. But with the priority being those elderly, those widows, those people who work, who cannot work, who cannot get another job, who are disabled, those people who truly need the help first and then move out from there is my priority. And I would just would like you to consider that as you move in -- as you wrestle this very difficult issue. Thank you.
Thank you very much,. The Chair recognizes Councilman Nutter.
Thank you, Mr. President. Just briefly, there was mention made about the utilization of the net proceeds going to the pension system. Councilwoman Clark raised an issue about one component of Mr. Hayllar's 425 11/30/98 - WHOLE - BILL NO. 980789 testimony having to do with the segregating of about 80 to $100 million, I believe for small or sometimes called emerging firms. What do you plan to do with the rest and how will that be split up among, either the current fund managers, or do you anticipate increasing the pool of fund managers for this now close to $30.
We basically would allocate it in proportion to what the current managers have and keep the same asset allocation plan, which is not based on managers particularly but a certain percent in international equity, a certain percent in national equity and so forth. And we would replicate that asset allocation using the current managers.
Once you get your asset allocation though, you will have to make some decisions about which managers the money goes to.
Yeah. The current manager will receive the funds in the same proportion as they have now to keep the asset allocation plan intact. 426 11/30/98 - WHOLE - BILL NO. 980789
Within his increase pool of dollars -- I forget what page it was, either or in the folder I was 5 referring to -- you talked about the fund being 6 able the increase the return because now you have 7 $4.4 billion in assets? 8
Do you anticipate 10 any changes in the asset allocation? We had a 11 little bit of discussion about the fund's return, I think in comparison to various indices; we may be over, we may be under. Do you anticipate making any asset allocation change based on an increased amount of funds to the vest.
No. It would be approximately the same plan we have now. The board is currently doing an annual review of that. It may tinker with it around the edges, but it is fundamentally going to be the plan we currently have.
How does our asset allocation compare to some other cities across the country and what their return were.
I will let Ms. Parker 427 11/30/98 - WHOLE - BILL NO. 980789 deal with that. Because we have been unfunded, we have taken a balanced approach because we have a fairly large state in fixed income to protect us in case there is a downside, a slide in the market. We are predominantly in equity, a good, strong fixed income approach. We do have an allocation in emerging markets, countries that are marked where there is growth in their economy, that might be unusual compared to another fund. We have real estate only in those investments that were made in the past. We have not made new invests. We are trying to wind that down. So there are some peculiarities in our plan. It is dissimilar to other public funds. It is conservative and it is designed to reach better than the 9 percent that is our actuarial assumption.
You were going to have Ms. Parker respond on something?
Our S&L -- Sandra Parker again. Our S&L allocation is pretty similar to what you find in most large public funds. And ours is considered large, because it's well over 428 11/30/98 - WHOLE - BILL NO. 980789 a billion dollars. In terms of our returns, in comparison to the public fund universe over a one-year period in the 40th percent file and over three years in the 62nd percentile.
The last time I really had to deal with percentiles was probably my SATs or something.
If you are top 40, you are doing better? MS. PARKER; exactly.
For one year you're in the 40th; for three years, we are in 62nd.
Oh three years. 429 11/30/98 - WHOLE - BILL NO. 980789 Okay.
Sir, after the year 2020 when the pension payments would be cheaper without the pension obligation bond, can the pension obligation bonds be refinanced to create greater savings? If not, aren't we creating the savings and pension plan payments that year in exchange for even greater payments?
The answer to your first question -- and I didn't understand the second part. The answer to the first question is -- the answer is yes, we can refinance.
We won't give you that much job security. Are you needing a recommendation? 430 11/30/98 - WHOLE - BILL NO. 980789
I think it is something that the City will always have to look at to make sure it is the greatest value in. With a taxable deals, there is no limit to refinancing, the constraints on tax incentive deals. It is something that the City will always have to monitor.
What is the interest rate the bonds are going to be paying.
We project that it will be somewhere in the facility -- the vicinity of 6 and three-quarters percent.
And that is much higher than what we paid, from what I remember, from all of these hearing. Can you tell me why?
It is taxable. The rates are higher because these are not tax incentive bonds, by their very nature.
Have we issued taxable bonds before? 431 11/30/98 - WHOLE - BILL NO. 980789
I am sure we have. Not in their lifetimes. But maybe there may be an indication.
Right. My name is Thomas Queenan, the City Treasurer. I don't think the city has issued taxable bonds since 1992 that I am aware of.
Because the IRS requires that this type of financing be done on a taxable basis because of the use of proceeds will go into equities, fixed income. They believe that requires a taxable rate. We're fortunate that the current market that the rate is so low for taxable. There have been challenges to this, but so far the IRS is ruling that these pension obligation bonds are taxable holds.
By "taxable" it means that investors of these bonds will have to report their income. 432 11/30/98 - WHOLE - BILL NO. 980789
So these are not the usual government tax-free obligations?
But the cost of the pension fund as a result is much higher, right? Aren't we issuing bonds at the rate of 4 and a half or 5 percent down.
Well, if we could do it at a taxable rate, the interest rate, if we could do it at a tax incentive rate, the interest rate would be lower. But there is no cost to the pension fund; it is the City that will pay the debt service. And we are trading our obligation to the pension fund for a lesser obligation on these bonds as demonstrated in that chart. But the pension fund does not pay the debt service on these bonds. We do, the participants in the fund.
Thank you very. Is there any other member who wishes to ask any 433 11/30/98 - WHOLE - BILL NO. 980843 question of these witnesses? Are you sure? Seeing no one, we will ask these witnesses to maybe take an appropriate seat where you can quickly come to the microphone if we need you. Are there other people in the chamber who wish to testify on these bills? Is there anyone else who wishes to testify on these bills? Seeing no one, at this time, we are now getting ready to consider Bill No. 980843, which is an ordinance adopting a comprehensive new pension plan for city employees by restating and amending the Retirement System Ordinance 17 approved December 3, 1956, as amended, and the Municipal Retirement Benefit Plan 1987 Ordinance, which became effective January 8, 1987, as amended, and by combining them in one comprehensive ordinance, to be codified in the Philadelphia Code.
Good evening. My name is Ben Hayllar, Director of Finance. I serve as Chairman of the Pension Board. With me is Joe 434 11/30/98 - WHOLE - BILL NO. 980843 Herkness, Executive Director of the Board of Pensions and Deborah Butler, Chief Deputy City Solicitor. We are here to speak in favor of Bill 6 980843, which constitutes a long overdue recodification of the City's retirement system. Since 1995 --
Excuse me, Mr. Hayllar, I apologize for this, but I have been informed that the stenographer needs a five-minute break. And on that basis, we will take a five-minute break. I will ask councilmembers to please don't go far. (Brief recess.)
I think I got through the introductions. We are here to speak in favor of Bill 19 980843, which constitutes a long overdo recodification of the City's retirement system. Since 1995, a committee comprised of representatives of the City Board of Pensions and Retirement, specifically Mr. Herkness, the Office of City Council, specifically Tom Erickson (ph), the City Law Department, Deborah Butler and Evan 435 11/30/98 - WHOLE - BILL NO. 980843 Myer and outside counsel John Nixon from Blank, Rome have been working on this ordinance. They had three tasks: First the combine into a single ordinance the many provisions and amendments that currently make our pension plan, secondly, to make certain that the provisions of our plan comply with the Internal Revenue Code of 1986, and finally, we felt that the several changes needed to be made in the pension plans so that provisions within the various plans were uniform. Each change enhances the benefits enjoyed by participants and, therefore, incurs an additional cost to the City. These provisions in the recodification will cost the City approximately $1 million a year. All changes are noted in the attached memorandum to my testimony; however, some of them should be noted here. We propose that military time be purchased by anyone who has an Honorable Conditions Discharge, currently the City requires that military time be purchased by people who have separated from the military with an honorable discharge. 436 11/30/98 - WHOLE - BILL NO. 980843 Honorable Conditions is a separation classification for people who are willing but unable to complete their military service. e. military pension -- under honorable conditions, we do not believe the City should require a stiffer standard. We do not believe that life insurance benefits through a City program should reduce the individual's ordinary death benefit. The ordinance corrects this. We believe that partial credit for service purchased under an installment plan that was broken should be allowed; the ordinance allows this. 2 percent of the employee contribution depending on the participant's age. Likewise, elected officials who serve four-year terms would be able to vest under the earlier of eight years or on completion of two terms and would pay an appropriate increase of 437 11/30/98 - WHOLE - BILL NO. 35 percent of their employee contribution. In these cases the change in the vesting would be entirely paid for by the individual. Finally we believe that the definition of "government service" that may be purchased should be expanded to cover any level of federal, state or local government. Currently only military time and time served within a unit of Pennsylvania government can be purchased. Currently, the pension fund is vexed with inconsistencies between plans. The recode seeks to make these systems uniform. For example, the time limit on the purchase of service will be set so that applications for purchases not made with one year of hire can be purchased but at a rate of 9 percent thereafter. No longer will individuals in various plans be unable to pack purchase time simply because they missed the deadline that they weren't sure of. Redesignation of the supervisor, if the originally survivor dies before the member's retirement is allowed for all plans on the recode. 438 11/30/98 - WHOLE - BILL NO. 980843 Currently Plan 56, but also known as Plan 67, does not provide for redesignation of the survivor in the event the originally designated survivor dies before the retired member. Currently Plan 56 or 67, espoused does not have to be living with a member at the time of his or her death to collect an ordinary death benefit for service connected death benefit, yet the spouse must be married and living with the member to receive a service connected death benefit under Plan 87. The ordinance before you would make the two plans consistent by adopting the Plan 56 standard.
In the recode, employees who are transferred are promoted to non-represented positions, are allowed to count past overtime credits toward their three years used in computing their pension benefits. Currently, the employees who are transferred are promoted to such positions where overtime is not credited, lose that overtime, and their pension calculation. This inconsistency would be corrected in the recodification ordinance. 439 11/30/98 - WHOLE - BILL NO. 980843 More over, the recode provides that members not entitled to be represented by a union may include over time in the calculation of their pension benefits. There is a cost of approximately $625,000 over ten years to this benefit. This is incidentally the bill that Councilman Mariano has also presented to Council. The forfeiture of a pension for criminal activity would how conform to Pennsylvania law. Finally. , have been interested in having the pension provide what is known as a deferred retirement option plan, a drop plan which is found in some municipal pension plans, would be designed by the Pension Board and tested for three years. After an actuarial evaluation, if the drop plan does not cost the City or the retirement system anything more than an immaterial amount, it would be continued. If it costs more than the material amount after the evaluation, the test period will be ended except 440 11/30/98 - WHOLE - BILL NO. 980843 for those who are enrolled. A drop program allows employees to announce that they will be retiring in three years. At that point, the City ceases to contributions for that participant saving money. Simultaneously while the participant continues on the City payroll, the pension fund begins to pay that individual's pension benefit into an escrow account. At the end of the three-year period, the individual separates, or retires and is able to accept the monthly pension payment as well as the amount that has been entered into the escrow account. We believe that such a program can be designed for employees who wish it, without costing the fund or the retirement system any money. Fundamentally, this recode places under one document the many fragments of pension law that have been enacted over the years and makes it conform for the IRS requirements. Other elements of the recode are detailed in the attached memos I provided. We request that Council approve this bill with the waiver of the rules. And I would be happy to 441 11/30/98 - WHOLE - BILL NO. 980843 answer any questions. I believe, also there are a couple of technical amendments that Ms. Butler has that we may wish to get to in minute. Thank you.
Thank you. Good evening. My name is Deborah Butler. I am Chief Deputy City Solicitor for the Commercial Law Unit at the Law Department. I am also General Investment Council for all of the City's pension funds, and I am chairperson of the committee that worked on this project. We started this project in 1995 as a Tax Qualification Project. The City's pension fund's tax determination letter is dated 1961. So we started this project in order to update the City's pensions fund tax determination letter. It just so happens that all of the pension bills had hit the council around the same time. But this was originally a project that started in the law department as a Tax Qualification Project. And once we started this project, we understood that Tom Erickson was working in Council President Street's office to codify and rewrite the pension ordinances in 442 11/30/98 - WHOLE - BILL NO. 980843 order that they can be user-friendly. So with that introduction, I would just like to briefly walk through the amendments, very technical amendments, that we would like to go through today. There are just four of them that are just four of them. And Council President Street, if we could have a Sergeant-of-Arms, I can distribute the appropriate copies, please? The Sergeant-of-Arms will be distributing a sheet with just the proposed amounts, and then there will be a second sheet with bullet points that will have a brief explanation of the amendment.
Yes, they are numbered exactly the same. The first amendment requests an amendment to Section No. 1, which is the entire codification of the bill, to insert an item in the table of contents, Section 22-807 Interest. The second amendment also requests an amendment to Section 1 providing that Plans A, B, 443 11/30/98 - WHOLE - BILL NO. 980843 L, Y and Plans D, J and X have the opportunity to buy leaves of absence after the current time period that is provided in the code. This will equalize the opportunities between the 56 Plans and the 87 Plans. As you know, it has been a goal of the Recode Committee to try to uniform the two plans as much as possible. And this section does that. This was just an oversight by the committee. The third amendment -- the third amendment provides the actual language for that provision amending Section 807-201-B. And you will see in the underlined section of the annotated handout the addition that is being made to that section. And the final amendment is to add a subsection of a reference in Section 22-302 to add 22-301-1C and 301-1D. The reference to 301-1C is to five-year vesting, and the reference to 301-1D is to Plan L vesting. So again, these are very technical amendments just adding some language to prevent any confusion oversights or misinterpretations of 444 11/30/98 - WHOLE - BILL NO. 980843 the statute.
Does anyone have any questions? I see no one. The Chair recognizes Councilman Nutter.
Actually, this involves a proposed amendment as well. In the briefing that we have on the recodification issue, you had actually asked a question with regard to any possibility of benefit, additional benefit to anyone that is currently an elected official. When I read through the documents, the section on the eight-year vesting, for a lack of officials, I would ask the law department to take a look at that from the perspective of there are a couple of Members of Council who would potentially be affected by the eight-year vesting provision. And even though we would be required to pay additional funds to vest an eight years as opposed to the current ten years, there is an outstanding either legal question or argument 445 11/30/98 - WHOLE - BILL NO. 980843 that some of us could, in fact, take advantage of something that is not available to us today. Those councilmembers are Councilwoman Blackwell, Councilman Kenney and myself. No other member would be affected directly by that particular provision. It has to do with the fact that we have about seven years. All other members either have more than eight years or less than four. So I would ask the law department to draft an amendment that would essentially prevent the three of us, at least in the body -- there may be other elected officials, although I am not aware of them, with the exception of possibly Election Official Commissioner Tammage (ph). That would prevent us from taking advantage of the eight-year vesting during our current terms of office, and that we would only be able to take advantage of it after the next election or actually the swearing in in January of the year 2000. I've had a discussion with my two colleagues about that, and they don't have any problem with it. 446 11/30/98 - WHOLE - BILL NO. 980843
If it would please Council President Street, we have amendments that we can distribute to Council, and there is an annotation.
Thank you, Councilman President Street. We would ask that these amendments be incorporated into Bill 843.
I would like to ask the councilmembers to hold onto these amendments. We won't have a public meeting this evening. But we do have a public meeting, we will need the amendments. Does anybody have any other questions? The Chair recognizes Councilman Cohen.
Mr. President, I would like to offer two amendments that are proposed by District Council 47. 447 11/30/98 - WHOLE - BILL NO. 980843 One seems to be an amendment, a very equitable amendment, in the changeover to Plan 87. There were certain members of Local 2187 who became promoted and became supervisors and, therefore, changed their affiliation to local 2186. There was an arbitration involving all of the employees of 2187, and I think there were similar arbitrations involving other unions that did not want to go under Plan 87 and wanted to stay in Plan J. And the arbitration was decided in favor of all of the employee unions. I think there were separate arbitrations, but the results were all the same. But a group of employees in 2186 who got into the supervisory level beginning sometime late in '87 throughout until the end of December '92 were never permitted to stay in Plan J. They were compelled to go over to Plan 87. They are the only group. The rest made it about 20 -- I am certain there couldn't be anymore than 25. There may be some less than 20. I have a list, I think, of 25 names. That is the best estimate of 448 11/30/98 - WHOLE - BILL NO. 980843 District Council 47 covering this group of employees. And I would like to distribute or have distributed the amendments that would be needed. Apparently different sections of the current law have to be amended to permanent this small group of to people to go into Pension 9 A -- J, who returned to Pension J. They would be 10 responsible for paying the additional costs of 11 the pension fund so that the amendment would be 12 revenue neutral. 13
Councilman, has 14 this amendment been review by the 15 administration? 16
Yes. I think Mr. 17 Hayllar is familiar with the amendments that have 18 been discussed with him and Mr. Erickson of your 19 staff all day long. And I think that there will 20 be no opposition. 21
If the facts are as we 22 understand them to be -- this is an issue that 23 came up very early this morning, and I have not 24 talked to Mr. Grab of Labor Relations -- I think 25 that will be fine. 449 11/30/98 - WHOLE - BILL NO. 980843
Because we will actually -- won't be doing a public meeting today, but we want to make sure that this is not a problem. We understand how pension law is.
You make a mistake in pension law, you pay until everybody dies.
(unintelligible) -- the proposed amendments to council.
I believe also the law department needs to review these amendments, that we have time to do that.
Yeah, that's why it's a good idea to get them -- you know, in the record now and then the law department and finance and revenue and however else has to look 450 11/30/98 - WHOLE - BILL NO. 980843 at them...
Now, the second amendment, which I think may be more controversial, is a proposed amendment regarding vesting within five years. And it is premised upon the fact that -- upon the notion that the five years provided for in the recodification bill to certain exempt employees, that that five-year vesting should be made possible for all employees. And I have a copy of the proposed amendment which I also like to have circulated.
And the administration may have a different point of view.
We would like to have that one circulated and the administration will be prepared to comment on it at the appropriate time.
We believe this to be a part of the whole issue that. 451 11/30/98 - WHOLE - BILL NO. 980843
At the public meeting, I will be prepared to move. This is a second amendment. A different amendment.
At either the continuation of the public hearing or, if not in the public meeting, although that doesn't usually occur, will we have an opportunity to get actual testimony or response from the City administration on the last two amendments.
You were off a beat. The Chair recognizes Councilwoman Verna.
Thank you. Mr. Hayllar, according to this bill 8 retirees who work for a quasi public agency will not be able to collect their city pension as long as they quasi agency's pension plan is administered by the city. What quasi authorities are administered by the city?
Are there any others? SPEAKER: Yes. The Municipal Authority. Until very recently the Penns Landing Corporation was part of the quasi group. They have dropped out of the quasi and instituted their own plan. The Parking Authority has about 500 and 600 employees. They are the bulk of the quasis. There are less than 900 people now. 453 11/30/98 - WHOLE - BILL NO. 980843 PHDC is also included. PIDC used to be included; they separated and reinstituted their own pension plan a few years ago.
Any other questions? Seeing no one, no questions, I would ask these fine witnesses to step to the side. I think there are other people who wish to testify.
I think we have representatives of the unions. Please identify yourself for the record.
Thank you. Good evening my name is Carol Stooks (ph). I am the representative of District Council 47. Also I am a Pension Board trustee for District Council 48.
I am the District Council 47 treasure and business agent for Local 2186.
Robert Baxter Communications Director for District council 47.
Do you have prepared testimony, or would you just like to 454 11/30/98 - WHOLE - BILL NO. 980843 summarize.
Not 100 percent. We do support the bill with some exceptions. And that was -- we support both of the bills, the bind bill -- we support that bill and we also support the recode bill with the two amendments that Councilman Dave Cohen presented to you this evening.
Suppose the administration opposes the five-year vest bill? What will your position be then.
We will still support the bill. We will just probably take it to negotiations. We are trying to look for something fair and equitable here, the same as Councilman Nutter just proposed for himself and other two council --
In other words, the administration hasn't made any commitment on the five-year vests, seeming to indicate the 455 11/30/98 - WHOLE - BILL NO. 980843 first amendment probably was not a problem. And I am just curious as to whether or not if the five-year vest is opposed by the administration and/or by the majority of the members of this council, does that affect your support for the bills?
We still support the bond bill. We think it is an important bill to deal with the unfunded pension liability. And while we would like support on both of our issues, we would still support the recodification even if it was the unfortunate five-year vesting amendment failed.
Thank you. That's important to us. What I would like to do though is make sure that we have you to talk to representative of the administration and Mr. Erickson so that we can make sure that there is no misunderstanding about it and that we at least have all of our facts straight. I mean, if it's for example just a revenue neutral bill, we just need to no that or any other problems that are associated with it. 456 11/30/98 - WHOLE - BILL NO. 980843 But I would like you to make sure that they understand the amendment and we can get a real clear story on it. Okay?
Thank you very much. We appreciate your patience in staying to the end.
Is there anyone he is who wishes to testify on these bills? The Chair recognizes Councilman Nutter.
Just a quick point of information. Is it my understanding that on this five-year vesting issue that this is one of possibly just a couple narrow issues where the decision can be made either at the negotiating table or by legislative action of the council to decide this particular issue? Is that my understanding of this; either it can be done here or it can be done as a part of the collective bargaining process between the unions and the 457 11/30/98 - WHOLE - BILL NO. 980843 executive?
I think it can be done at either place, but I don't know whether or not it is that simple.
I just don't know. I mean the administration wants to take a look at it. And I am sure -- Mr. Hayllar is here, if you want him to comment on it right now.
If he has a perspective, that's fine. I just want to know what the real issue is. And, again, it seems to be one it could be decided here or it can be decided somewhere else under collective bargaining. We don't normally, for the most part, get involved in -- by law -- in the finite details of collective bargaining agreements. This just seems to be one of a couple of narrow issues where it can go either way. I mean, what of the pluses and minuses to it being done here or being done in collective bargaining?
Are you talking about 458 11/30/98 - WHOLE - BILL NO. 980843 the five-year vest --
-- for District 47? Well, clearly we believe management and labor should settle these disputes between themselves and not have to go to City Council to settle things that they couldn't get during the negotiation process. We believe --
Because we are not at the table. Again, this seems to be a narrow issue that we actually could do the --
Well, a five-year vest is not a narrow issue since it deals with a large number of people and you make --
Well, I don't mean that the issue is narrow. There are a million issues that get negotiated. 999,999 of them usually don't end up over here.
So what I mean 459 11/30/98 - WHOLE - BILL NO. 980843 when I say "a narrow issue," it is one of maybe just a couple in the universe of a million that whatever end up over here for us to do anything with, we don't negotiate contracts.
I think even if this issue were negotiated, it would probably have to be legislation that would be brought over here in order to amended the pension law to conform to the agreement. I think we recently did something with the PGW. Didn't we have that public hearing?
So then it becomes a process issue of does it come here first and get done essentially almost without the administration, or does it come as a result of a decision made between these executive and the labor unions and then they've agreed to it and 460 11/30/98 - WHOLE - BILL NO. 980843 then we were just implementing what came out of the agreement. Is that what this comes down to?
Is there a fiscal implication? Not the five-year vest versus a ten-year vest.
Not immediately. There is an administrative problem that the pension fund would have to deal with and what that's going to incur in cost, at some point to the pension staff to be able to implement this. I would have to read the Cohen Amendment.
You may need to dedicate time to implementing this. This becomes a subset of another pension plan because you have ten year and five year vests within the same fund. It may be administratively a problem, which is going to cause an allocation of time of staff to fix it. I would have to see Councilman Cohen's amendment, because as I understand it, 461 11/30/98 - WHOLE - BILL NO. 980843 the 47 is proposing that they pay the employees' share for the five-year vest; that would be rationed up. But there would be a difference to what the City would have to pay on the City's contribution. I would have to check to see what that is. Fundamentally we don't -- we think that collective bargaining will lose its force if the parties can come here to get stuff they couldn't get at the table. If you know they can do that, why do you want to negotiate. And we want to be in a position where we can negotiate these issues.
All right. Lastly, is there any reason to think that if this wasn't done here and it is being raised by District Council 47, do we have any information on the perspective of the other three public employee unions on five-year vesting?
All right. So you are anticipating a ripple effect -- 462 11/30/98 - WHOLE - BILL NO. 980843
The person before you suggested that all of the parties get together on these amendments so we can have a clear statement of position, and you mentioned a number of people. I have requested Mr. Shapiro of our legal staff to be working on these amendments. And I wanted to ask that he be included, because he is representing the point of view of the amendments, and we want all of the parties to be together. He has been working with Mr. Erickson all day long. And from time to time with the administration representatives.
Just so we don't get different opinions at different time.
Councilman Cohen, Mr. Shapiro came over and introduced himself very 463 11/30/98 - WHOLE - BILL NO. 980843 graciously, so we will be in touch with each other immediately. Thank you.
Anything further? Is there anyone else that wishes to testify on any of the bills that is are in front of the committee? Can we get somebody to go out on the sidewalk to see if we can get somebody? Seeing no one, this Committee will stand in recess until Thursday morning at 8:30 a.m.. Thursday morning at 8:30 a.m. And think I think that is December 3rd. Thursday morning, December 3rd, 8:30 a.m. (Adjourned at 7:05 p.m.) - - - 464 CERTIFICATE I HEREBY CERTIFY that the foregoing proceedings of the Council of Philadelphia of Monday, November 30, 1998 were reported and accurately transcribed by me and that this is a true and correct transcript of same. RE: COUNCIL COMMITTEE OF THE WHOLE BILL NO.'S - 980784, 980785, 980788, 980787, 980796, 980789 and 980848 ______________________________ BERNADETTE M. BLACK, RPR and Notary Public (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)